10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2015

OR

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

For the transition period from to

Commission file number: 001-37478

NATERA, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	01‑0894487
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
201 Industrial Road, Suite 410 San Carlos, CA	94070
(Address of Principal Executive Offices)	(Zip Code)

(650) 249‑9090

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ◻ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act. Yes ◻ No ☒

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 Rule 405 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

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. (Check one):

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

The aggregate market value of the voting stock held by non-affiliates of the Registrant on June 30, 2015, based on the closing price of $22.74 per share as reported on the NASDAQ was approximately $0.6 billion. The registrant has elected to use July 2, 2015 as the calculation date, which was the initial trading date of the Registrant’s common stock on the NASDAQ public market, because on June 30, 2015 (the last business day of the Registrant’s second fiscal quarter), the Registrant was a privately-held company.

As of February 29, 2016, the number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, was 50,852,374.

DOCUMENTS INCORPORATED BY REFERENCE

Information required in response to Part III of this annual report on Form 10-K is hereby incorporated by reference to portions of the Registrant’s proxy statement for its Annual Meeting of Stockholders to be held in 2016. The proxy statement will be filed by the Registrant with the Securities and Exchange Commission within 120 days after the end of the Registrant’s fiscal year ended December 31, 2015.

Natera, Inc.

FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2015

TABLE OF CONTENTS

		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		3
	PART I
Item 1.	Business	5
Item 1A.	Risk Factors	28
Item 1B.	Unresolved Staff Comments	62
Item 2.	Properties	62
Item 3.	Legal Proceedings	62
Item 4.	Mine Safety Disclosures	63
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	64
Item 6.	Selected Financial Data	66
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	67
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	82
Item 8.	Financial Statements and Supplementary Data	84
Item 9.	Changes in  and Disagreements with Accountants on Accounting and Financial Disclosure	119
Item 9A.	Controls and Procedures	119
Item 9B.	Other Information	119
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	120
Item 11.	Executive Compensation	120
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	120
Item 13.	Certain Relationships and Related Transactions, and Director Independence	120
Item 14.	Principal Accounting Fees and Services	120
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	121
	Signatures	122
	Index To Exhibits	124

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. The forward-looking statements are contained principally in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere in this report. Forward-looking statements include information concerning our future results of operations and financial position, strategy and plans, and our expectations for future operations. Forward-looking statements include all statements that are not historical facts and, in some cases, can be identified by terms such as "believe," "may," "will," "estimate," "continue," "anticipate," "design," "intend," "expect," "could," "plan," "potential," "predict," "seek," "should," "would" or the negative version of these words and similar expressions.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including those described in "Risk Factors" and elsewhere in this report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our beliefs and assumptions only as of the date of this report. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. You should read this report completely and with the understanding that our actual future results may be materially different from what we expect.

These forward-looking statements include, but are not limited to, statements concerning the following:

· our expectation that, for the foreseeable future, a significant portion of our revenues will be derived from sales of Panorama;

· our ability to increase demand for Panorama, expand geographically, and obtain favorable coverage and reimbursement determinations from third-party payers;

· our reliance on our partners to market and offer Panorama in the United States and in international markets;

· our expectation that Panorama will be adopted for broader use in average-risk pregnancies and for the screening of microdeletions and that third-party payer reimbursement will be available for these applications;

· developments or disputes concerning our intellectual property or other proprietary rights;

· our ability to successfully expand our product offerings to include cancer-related and other diagnostic tests;

· competition in the markets we serve;

· our expectations of the reliability, accuracy, and performance of Panorama;

· our expectations of the benefits to patients, providers, and payers of Panorama;

· our reliance on collaborators such as medical institutions, contract laboratories, laboratory partners, and other third parties;

· our ability to operate our laboratory facility and meet expected demand;

· our reliance on a limited number of suppliers, including sole source suppliers, which may impact the availability of replacement laboratory instruments and materials;

· our expectations of the rate of adoption of Panorama and of any of our future tests by laboratories, clinics, clinicians, payers, and patients;

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· our ability to publish clinical data in peer-reviewed medical publications regarding Panorama and any of our future tests;

· our ability to successfully implement our cloud-based distribution model;

· our ability to develop additional revenue opportunities through new tests, including in the field of cancer diagnostics;

· the scope of protection we establish and maintain for intellectual property rights covering Panorama and any other test we may develop;

· our estimates regarding our costs and risks associated with our international operations and international expansion;

· our ability to retain and recruit key personnel;

· our reliance on our direct sales efforts;

· our expectations regarding acquisitions and strategic operations;

· our ability to fund our working capital requirements;

· our compliance with federal, state, and foreign regulatory requirements;

· the factors that may impact our financial results; and

· anticipated trends and challenges in our business and the markets in which we operate.

Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Except as required by law, we disclaim any obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

As used in this annual report on Form 10-K, the terms “Natera”, “Registrant”, “we”, “us”, and “our” mean Natera, Inc. and its subsidiaries unless the context indicates otherwise.

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PART I

Item 1.BUSINESS

Note: A glossary of terms used in this Form 10-K appears at the end of this Item 1.

Overview

We are a rapidly growing diagnostics company with proprietary molecular and bioinformatics technology that we are deploying to change the management of genetic disease worldwide. Our novel molecular assays reliably measure many informative regions across the genome from samples as small as a single cell. Our statistical algorithms combine these measurements with data available from the broader scientific community to detect a wide range of serious conditions with best-in-class accuracy and coverage. Our technology has been proven clinically and commercially in the prenatal testing space. We believe this success can be translated into the liquid biopsy space, and we are developing products for a number of oncology applications. In addition to our direct sales force in the United States, we have a global network of approximately 70 laboratory and distribution partners, including many of the largest international laboratories. We are enabling even wider adoption of our technology with our introduction of a global cloud-based distribution model. We have launched seven molecular diagnostic tests since 2009, and we intend to launch new products in prenatal testing and oncology in the future. In March 2013, we launched Panorama, our non-invasive prenatal test, or NIPT. Panorama represented approximately 73% of our revenues, with over 254,000 Panorama tests accessioned, during the year ended December 31, 2015. Our revenues have grown to $190.4 million in 2015 from $159.3 million in 2014 and from $55.2 million in 2013. Our net losses increased to $70.3 million in 2015 from $5.2 million in 2014 which was a decrease from $37.1 million in 2013.

Our focus is on determining the likelihood of a wide range of genetic conditions. Genetic inheritance is conveyed through a naturally occurring information storage system known as deoxyribonucleic acid, or DNA. DNA stores information in a linear sequence of the chemical bases adenine, cytosine, guanine and thymine, represented by the symbols A, C, G, and T. Billions of bases of A, C, G, and T link together inside living cells to form the genome, which can be read like a code or a molecular blueprint for life. While differences in the specific sequence and structure of this code drive biological diversity, certain variations can also cause disease. Examples of genetic diversity include copy number variations, or CNVs, and single nucleotide variants, or SNVs. A CNV is a genetic mutation in which relatively large regions of the genome have been deleted or duplicated, and an SNV is a mutation where a single base has changed. When single base changes are common in the population, that position on the chromosome, or loci, is called a single nucleotide polymorphism, or SNP. When genetic variations are a cause of disease, such as Down syndrome or breast cancer, detecting them within the patient's tissue or body fluidsample can enable diagnosis and treatment. Our goal is to develop and commercialize non- or minimally-invasive tests for the highly reliable detection of variations covering a broad set of diseases. We have first applied our technology to prenatal testing, and we are leveraging our core expertise to develop blood-based diagnostic tests for cancer.

In both prenatal testing and oncology, the use of blood-based diagnostic tests offers significant advantages over older methods, but the significant technological challenge is that such testing requires the measurement of very small amounts of relevant genetic material circulating within a much larger blood sample. Our approach combines proprietary molecular biology and computational techniques to measure genomic variations in tiny amounts of DNA, as small as a single cell. Our molecular biology techniques are based on measuring thousands of SNPs simultaneously using massively multiplexed polymerase chain reaction, or mmPCR, to multiplex, ortarget, over 20,000 regions of the genome simultaneously in a single test reaction. Our method avoids losing molecules by splitting the sample into separate reaction tubes, so that all relevant variants can be detected. We believe our approach represents a fundamental advance in molecular biology. This approach is distinct from the approach employed with other commercially available NIPTs, which use first-generation “quantitative”, or counting, methods to compare the relative number of sequence reads from a chromosome of interest to a reference chromosome. Based on extensive data published in the journals Obstetrics & Gynecology, the American Journal of Obstetrics & Gynecology, and Prenatal Diagnosis, we believe Panorama is the most accurate NIPT commercially available in the United States.

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To make sense of this deep and rich set of biological data and deliver a diagnosis, we have developed computationally intensive algorithms that combine the data generated by mmPCR with the ever-expanding set of publicly available data on genetic variations. Our technology is compatible with standard equipment used globally and a range of NGS platforms, and we have optimized our algorithms to enable laboratories around the world to run diagnostic tests locally and access our algorithms in the cloud.

We believe that our mmPCR technology and proprietary algorithms, which have been proven in the context of non-invasive prenatal testing, can be a powerful tool in oncology applications such as therapy monitoring, recurrence monitoring and early detection screening. In oncology, we have demonstrated our ability to detect both CNVs and SNVs from very low concentrations of tumor DNA circulating in a blood sample, or ctDNA. Because lung, ovarian and breast cancer are driven, to varying degrees, by a combination of CNVs, SNVs and gene fusions, which are abnormalities in which DNA segments from two different genes are exchanged, forming one fused gene, we believe that our approach is well-suited for therapy selection, recurrence monitoring and early detection for these cancers.

Our Solution

Our technologies allow us to achieve a high signal to noise ratio when detecting fragments of DNA from samples as small as a single cell, which allows us to deliver screening tests with differentiated specificity, sensitivity, and coverage. From a single blood draw, our current commercial tests assess the risk of a broad range of conditions, which we refer to as "coverage," including common fetal aneuploidies, microdeletions, triploidy, and inherited genetic conditions that could be passed on from parent to child. We sell our tests directly and partner with other clinical laboratories to distribute our tests globally. Currently, all of our products other than our Constellation cloud software product are laboratory developed tests, or LDTs, which are tests that are designed, developed, validated and used within a single laboratory, and we perform commercial testing in our CLIA-certified laboratory.

Our proprietary innovations in both molecular biology and bioinformatics drive performance of our current prenatal genetic tests and our development pipeline. Our mmPCR technology optimizes the behavior of primers in a reaction to generate a high-resolution measurement of thousands of DNA loci in patient samples. As a result, we can capture mutations from a single DNA fragment within a large background of extraneous DNA found in a patient's blood sample. We believe our molecular technology has the potential to enable a broad range of applications in prenatal diagnostics and cancer. For example, the ability to target primers in a specific area of chromosome 22 allows our prenatal microdeletions panel to assess the risk of 22q11.2 deletion syndrome, which is caused by the deletion of a small piece of chromosome 22 and, if identified during pregnancy, can be treated with early intervention at the time of birth to avoid seizures and reduce cognitive impairment, with demonstrated higher sensitivity and specificity than other commercially available tests.

An illustration of the resolution that can be achieved with our mmPCR capability is provided below. The figures display data from our approximately 20,000 primer mmPCR assay, where each assay targets one SNP. On the left, the assay is applied to a large genomic DNA sample from a child. On the right, the assay is applied to a single cell from the same child. Each dot represents data from a particular SNP location on a chromosome. The assay measures the amount of each of the two possible sequences of nucleotides, or alleles, at each SNP. The plots below show the relative proportion of the two alleles, plotted along the vertical axis, for each of the approximately 20,000 SNPs, arranged sequentially along the vertical axis. The two alleles are arbitrarily labeled A and B, and each dot is colored according to the allelic contribution of the mother—red (A) or blue (B). Those SNPs where both copies of DNA in the child contain only the A allele are red and are found at the very top of the plot, and those SNPs where both copies of DNA in the child contain only the B allele are blue and are found at the very bottom of the plot. The SNPs where the fetus contains at least one copy of the A allele and one copy of the B allele are found near the center of the plot. The four vertical bars separated by dotted lines display data from chromosomes 13, 18, 21 and X. For chromosomes 13, 18 and X, the middle band is centered on 0.5; which indicates that for those SNPs, the child has one copy of the A allele and one copy of a B allele (and therefore a relative proportion of 0.5), and, therefore, has the right number of chromosomes—two. In this sample, an additional chromosome is present at chromosome 21, which indicates the presence of trisomy 21. For chromosome 21, the bands centered at 0.33 and 0.66 signal the additional nucleotides contributed by the mother. The band centered at 0.33 represents SNPs where the child has two copies of the B allele and one copy of the A allele, and the band centered at 0.66 represents SNPs where the

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child has two copies of the A allele and one copy of the B allele. The assay clearly quantifies the difference between single molecules of a particular allele at each SNP. The images demonstrate our ability to derive actionable information from tiny quantities of DNA, as the data from a single cell in the image on the right is nearly as informative as the data from a large genomic sample in the image on the left.

Our bioinformatics technology complements our molecular technology to deliver a risk assessment with high sensitivity and specificity. We use proprietary statistical techniques to combine the measurements of our molecular assays with our internal databases and the vast and growing sources of publicly available genomic information to build highly detailed models of the genome of interest. This process includes the use of a statistical technique known as maximum likelihood estimation, or MLE, which is widely used in other industries, such as in the conversion of a noisy transmitted analog communications signal to a digital format. However, it is computationally complex to leverage this technique to combine genomic information from the patient's sample and information from the databases of the broader scientific community. We have issued U.S. patents claiming methods to do so and pending applications in the United States and abroad. We also maintain trade secrets on our processes and practices. Our proprietary solution using MLE enables us to continuously improve the performance of our existing tests and efficiently develop new ones. As our patient volumes grow, our internal database of samples with genetic mutations and corresponding clinical outcomes further enhances our ability to interpret the clinical significance of complex genetic mutations. As the genomic data from the scientific community, such as from the Cosmic Database and the Cancer Genome Atlas, becomes richer, we can seamlessly integrate new clinical knowledge into our bioinformatics algorithm, driving further improvement in our tests.

Panorama

We launched our Panorama NIPT in 2013 and our microdeletions panel for Panorama in 2014. Panorama demonstrates the capabilities of our technology by employing our fundamentally unique approach of simultaneously measuring thousands of SNPs in a single test reaction to identify genetic variations in fetal DNA with a high degree of specificity and sensitivity.

Panorama helps physicians assess fetal genetic abnormalities by non-invasive screening for fetal chromosomal abnormalities, including Down syndrome, Edwards syndrome, Patau syndrome, Turner syndrome and triploidy, which often result in intellectual disability, severe organ abnormalities and death of the fetus. Panorama can also identify fetal sex. Panorama is performed on a maternal blood sample, and can be performed as early as nine weeks into a pregnancy, which is significantly earlier than traditional methods, such as serum protein measurement where doctors measure the presence and amount of certain hormones in the blood. Panorama starts with a simple blood draw from the mother, either in a doctor's office, in a laboratory or through a phlebotomist that may travel to the patient. Currently, all samples are then sent to our CLIA-certified laboratory in California. We extract DNA from each sample, amplify the specific SNPs that we

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are interested in measuring and then sequence the DNA using NGS. Using our proprietary bioinformatics technology, we analyze the DNA sequences to assess the state of the fetal genome, focusing on the SNP data, while incorporating public information from the Human Genome Project. Our bioinformatics algorithm builds billions of detailed models of the potential genetic state of the sample to determine the most likely diagnosis. After Panorama generates its result, we provide the doctor or the laboratory with a simple report showing the risk that abnormalities are present in the fetus. Approximately 97% of Panorama results currently are delivered within seven calendar days after we receive the blood sample, and approximately 99% currently are delivered within ten calendar days.

The analytic and clinical validity of our technology demonstrated in Panorama and our other products has been described in multiple peer-reviewed publications, including the journals Science, Human Reproduction,  Molecular Human Reproduction,  Fertility and Sterility,  PLOS ONE,  Genetics in Medicine,  Prenatal Diagnosis,  Fetal Diagnosis and Therapy,  Obstetrics & Gynecology,  Genome Medicine, and American Journal of Obstetrics & Gynecology. Based on data published in Prenatal Diagnosis,  Fetal Diagnosis and Therapy and Obstetrics & Gynecology, Panorama demonstrated greater than 99% overall sensitivity for aneuploidies on chromosomes 13, 18 and 21 and triploidy and specificity of greater than 99.9% (less than 0.1% false positive rate) for each disorder, which we believe makes it overall the most accurate NIPT commercially available in the United States. A paper published in the August 2014 issue of Obstetrics & Gynecology reported that Panorama had a statistically significant lower false positive rate than other NIPT methods practiced by our U.S. competitors. Based on data published in Obstetrics & Gynecology,  Prenatal Diagnosis, and American Journal of Obstetrics & Gynecology, we have also demonstrated the ability to identify fetal sex more accurately than competing NIPTs. This is partially a result of Panorama's unique ability to detect a vanishing twin, which is a known driver of fetal sex errors with quantitative methods used by our competitors. The October 2014 issue of the American Journal of Obstetrics & Gynecology noted that the ability of Panorama to identify additional fetal haplotypes is expected to result in fewer false positive calls and prevent incorrect fetal sex calls. A recent study reporting on the use of Panorama in over 30,000 women, published in the American Journal of Obstetrics & Gynecology, supported the use of NIPT as a first-line screening test for aneuploidy.

We believe Panorama's specificity and sensitivity can give patients and their physicians a greater degree of comfort in choosing to forego unnecessary confirmatory invasive procedures, lowering the total cost to the healthcare system of these procedures and limiting the resulting risk of spontaneous miscarriage associated with invasive procedures.

Our Panorama microdeletions panel screens for five of the most common genetic diseases caused by microdeletions – 22q11.2 deletion syndrome (Di George syndrome), 1p36 deletion, Angelman syndrome, Cri-du-chat syndrome and Prader-Willi syndrome. Microdeletions are missing sub-chromosomal pieces of DNA, which can have serious health implications depending on the location of the deletion. Based on data published in Prenatal Diagnosis and American Journal of Obstetrics & Gynecology, the combined prevalence of these targeted microdeletions is approximately one in 1,000 pregnancies, which collectively makes them more common than Down syndrome for women younger than approximately 29 years of age. Unlike Down syndrome, where the risk increases with maternal age, the risk of these five microdeletions is independent of maternal age. Diseases caused by microdeletions are often not detected via common screening techniques such as ultrasound or hormone-based screening, yet the presence of a microdeletion can critically impact postnatal treatment. For example, when learning prior to the birth of a newborn with 22q11.2 deletion syndrome, or DiGeorge syndrome, doctors will know to deliver calcium to the infant to avoid seizures and permanent cognitive impairment and will know to avoid administering routine vaccinations due to the immunodeficiency frequently associated with this condition.

Panorama has demonstrated best-in-class performance screening for microdeletions. In validation studies, Panorama achieved sensitivity greater than 95% for deletions of approximately 2.9Mb for the 22q11.2 deletion syndrome and has been validated to perform at low fetal fractions, which refers to the percentage of fetal, as opposed to maternal, DNA in a maternal plasma sample. Based on data published in the January 2016 issue of Ultrasound inObstetrics & Gynecology, Panorama demonstrated a PPV of 18% and false positive rate of 0.38% for 22q11.2 deletion syndrome. The Panorama microdeletions panel has conditional approval from the New York State Department of Health.

The graph below summarizes the incidence of genetic diseases for which prenatal screening is relatively common, as well as the incidence of genetic diseases caused by microdeletions that are screened by the Panorama microdeletions

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panel. Incidence rates are higher than that of many commonly tested disorders, such as cystic fibrosis and spinal muscular atrophy. We estimate that triploidy and the aneuploidy and microdeletion conditions that we screen for combined are more than three times as prevalent in the general population as the three most common autosomal aneuploidies, trisomies 13 (Patau syndrome), 18 (Edwards syndrome), and 21 (Down syndrome), alone.

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The graph below demonstrates how the relative incidence of Down syndrome and genetic diseases caused by the microdeletions screened for by the Panorama microdeletions panel varies with maternal age.

Because the microdeletions that we screen for are more common at birth than fetal aneuploidies for children born to younger women, and based on the performance of Panorama on microdeletions, we believe our microdeletions testing capability will be a significant driver of Panorama adoption in all risk categories, including those who are traditionally considered average-risk. We intend to continue to work closely with physicians, medical societies, payers, patient advocacy groups such as the International 22q11.2 Deletion Syndrome Foundation, Inc., and our laboratory partners to demonstrate that Panorama's sensitivity and specificity across a range of chromosomal abnormalities and superior false positive rates, coupled with disease coverage for conditions in which prevalence does not vary with maternal age, represent a compelling case for broad adoption in the average-risk population.

In 2015, we implemented various updates to both the molecular and bioinformatics portions of Panorama, which reduced the cost of running Panorama and further improved its performance. Our updates increased the sensitivity of the test, allowing it to run with lower fetal fraction input and therefore requiring less frequent redraws. We were also able to decrease the redraw rate independent of the presence of a paternal sample from a cheek, or buccal, swab, which we expect will result in improved ease of use for clinics as well as lower redraw rates, while maintaining the same overall sensitivity and specificity of the test. In validation studies, the new process demonstrated overall specificity of 100% and sensitivity of 99.5%, including sensitivity of 99.4% for Down syndrome and 100% for Edwards, Patau and Turner's syndromes and triploidy. In addition, validation data of the new methods supports the conclusion that these improvements will meaningfully improve the ability of Panorama to achieve a reportable result despite low fetal fraction.

Panorama's commercial performance has been consistent with our initial validation data. Data published in the American Journal of Obstetrics & Gynecology on 28,739 commercial cases of Panorama that were screened for trisomy

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21, trisomy 18, trisomy 13 and monosomy X demonstrated per indication sensitivities between 97.3% and 100%, and specificities of greater than 99.9%, for all indications. We believe Panorama's performance in commercial practice represents a significant improvement over first-generation NIPTs that rely on quantitative methods. Because Panorama does not require a reference chromosome, it is uniquely able to detect triploidy as well as full molar pregnancies. Panorama’s ability to differentiate between maternal and fetal DNA also allows Panorama to identify the presence of a vanishing twin, as well as maternal abnormalities, which have been shown in multiple studies to lead to false positives when using quantitative methods, particularly in the sex chromosomes where maternal abnormalities are common.

Panorama has demonstrated substantial commercial success to date. We believe our test performance has allowed us to command a price premium compared to low-cost NIPTs while continuing to maintain growth in volume and revenue from Panorama.

Our Other Products

The following table summarizes our other products launched to date.

Product	Indication(s)	Year Launched	Description
Constellation Software	Clinical or research applications that involve analysis of CNVs and SNVs in a DNA mixture	2015	Allows laboratory customers to gain access through the cloud to the same algorithms and bioinformatics that we use in our own laboratory, allowing for validation and commercialization of tests based on our technology, including NIPT.
Horizon Carrier Screen (CS)	Up to 274 conditions, including: Cystic fibrosis Spinal muscular atrophy Fragile X syndrome Duchenne Muscular Dystrophy	2012	CS test performed either before or during pregnancy for a large number of serious genetic disorders that could be passed on to the carrier's children.
Non-Invasive Prenatal Paternity Test	Paternity	2011	Reliably indicates paternity as early as nine weeks gestation.
Anora Products of Conception Test (POC)	Post-miscarriage testing	2010	POC test developed specifically to identify fetal chromosomal causes of miscarriages using a SNP microarray.
Spectrum Preimplantation Genetic Diagnosis (PGD) and Spectrum Pre-implantation Genetic Screening (PGS)	Inherited diseases (PGD) Extra or missing chromosomes and segmental deletions or duplications (PGS)	2010 (PGD) 2009 (PGS)	Spectrum PGD tests for specific genetic disease(s) that the couple is known to be at risk to pass on to their children. Spectrum PGS can inform clinicians and patients which IVF-created embryo samples have the correct number of chromosomes and are suitable for transfer.

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Horizon

Horizon helps couples determine if they are carriers of genetic mutations that cause specific diseases. If the mutation is passed to a child, it could result in a child affected with the disease. Horizon screens for up to 274 inherited diseases, including cystic fibrosis, Duchenne Muscular Dystrophy, spinal muscular atrophy, Fragile X syndrome and other conditions. Horizon was created based on recommended screening guidelines from the American Congress of Obstetricians and Gynecologists, or ACOG, the American College of Medical Genetics and Genomics, or ACMG, and the Victor Center for the Prevention of Jewish Genetic Diseases. Horizon can be performed simultaneously with Panorama, using the same blood draw, to complement the utility of our NIPT offering for patients. Horizon employs next generation sequencing to analyze the DNA from the individual’s blood or saliva sample to determine if the individual is a carrier for the genetic disease in question. Horizon test results are generally returned in ten to 14 business days from the day we receive the sample, depending on the individual subtests ordered.

Constellation

Our Constellation software forms the core of our cloud-based distribution model. Through this model, we have been able to expand access to our molecular and bioinformatics capabilities worldwide, enabling laboratories, under a license from us, to run the molecular workflows themselves and then access our computation-intensive bioinformatics algorithms through Constellation, which runs in the cloud, to analyze the results. As of February 29, 2016, four licensees have commercialized products through our Constellation platform, including three in NIPT and one in prenatal paternity testing. We have licensing contracts with various other laboratories, in the United States and internationally, who are developing products in both NIPT and oncology. We are in active discussions with many other potential licensees in the United States and abroad to continue to grow our cloud-based distribution network, which we believe will further enhance adoption of our tests among laboratory licensees globally. We also leverage Constellation to more efficiently perform our internal commercial laboratory activities and to perform research and development of our products.

In July 2014, we achieved a CE Mark from the European Commission for our Constellation software. In May 2015, we achieved a CE Mark for the key reagents that our laboratory licensees need to run their portion of the Panorama test prior to accessing our algorithms through Constellation. These combined CE Marks enable us to offer Constellation for Panorama NIPT in the European Union and other countries that accept a CE Mark. We are pursuing other regulatory approvals, as needed, to allow the international roll out of Constellation in regions that do not accept a CE Mark.

We believe that our cloud-based distribution model provides us with a competitive advantage by allowing us to:

· Improve patient experience. By eliminating the need to ship samples to our CLIA laboratory in California, patients benefit from faster turnaround times and lower costs.  

· Drive higher rates of reimbursement for our laboratory licensees. We believe that our cloud-based distribution model allows many international laboratory licensees and their patients to achieve improved reimbursement from health insurance plans, as many state-administered and private payers in international markets require that the sample remain within national borders as a condition for reimbursement.  

· Accelerate international adoption by leveraging our licensees' existing capabilities. Our laboratory licensees are able to offer tests under their existing laboratory certifications as required by local regulators, leverage their local infrastructure for sample collection, and deploy local marketing capabilities to further increase test volumes.

· Efficiently achieve scale. The cloud-based distribution model allows us to leverage rapidly expanding sequencing capacity around the world to drive volumes faster than would be possible from the expansion of our own CLIA-certified laboratory capacity, and enables our laboratory licensees to drive volumes without significant incremental expenditures on information technology.

· Reduce costs. As test volumes increase, the costs of shipping samples, particularly internationally, and labor

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costs in our CLIA-certified laboratory in California increasingly become the largest cost components. Our cloud-based distribution model eliminates these costs, expanding the margin opportunity for us and our laboratory licensees and better enabling our tests to withstand pricing pressure.

· Efficiently deliver innovations to our laboratory licensees. The cloud-based distribution model positions us to efficiently offer enhancements we make to our algorithms, test menu, and any new products we commercialize to the network of laboratory licensees that are already utilizing our Constellation platform.

Other products

Our PGS and PGD tests, which we market under the Spectrum brand, are for couples undergoing IVF. Our PGS test screens embryos for chromosomal abnormalities prior to transfer of embryos created through IVF procedures, which have a high rate of non-viable chromosomal abnormalities. This allows IVF physicians to select and transfer embryos with normal chromosome results and, combined with single embryo transfer, greatly increases the rate of implantation and pregnancy, reduces the risks of a multiple pregnancy and may reduce the need for costly multiple IVF cycles. Our PGD test screens embryos for couples who are concerned about passing on a specific genetic defect to their child.

Anora is our POC product, which tests miscarriage tissue in women who have experienced one or more miscarriages to determine whether there was an underlying genetic reason for the miscarriage(s). Anora helps couples understand their future options, the likelihood of another miscarriage and whether there are any steps that may help them avoid a miscarriage in future pregnancies.

Our non-invasive prenatal paternity product allows a couple to safely establish paternity without waiting for the child to be born. Testing can be done as early as nine weeks in gestation using a blood draw from the pregnant mother and alleged father. Our internal data indicates that the accuracy of this test is greater than 99.99%. We have licensed this technology to a third party to perform the test in its clinical laboratory.

Direct Sales Force and Global Distribution Network

Through our direct sales efforts and worldwide network of approximately 70 laboratory and distribution partners, we have established a broad distribution channel. Our own direct sales force and managed care teams, which include over 140 genetics-focused sales representatives,  anchor our commercial engagement with physicians, laboratory partners, and payers, and sell directly to MFM, OB/GYN, physician or physician practice, IVF center, or integrated health system. In the NIPT market, Panorama is typically ordered for a patient by an MFM or OB/GYN. There are over 37,000 OB/GYNs in the United States and most of them practice generalist medicine for women's health. They typically only assist women with average risk pregnancies and will refer women with high risk pregnancies to one of the more than 2,000 MFMs in the United States. We believe that Panorama will continue to be adopted by physicians for broader use in average risk pregnancies, and therefore anticipate that an increasing share of Panorama orders in the future will be attributed to OB/GYNs.

Where our sales force can access physician offices directly, as in the U.S. market, we are able to maximize cross-selling opportunities by offering the full portfolio of our products. For example, we are promoting the use of Panorama NIPT, our Panorama microdeletions panel, and Horizon together for pregnant women who have not had a CS test at the time they are ready to have an NIPT performed. These tests can all be run using one blood draw from the mother and can be ordered on one requisition form and with one shipment of the patient’s samples by the physician. Also, because of the importance and demand for screening for 22q11.2 deletion syndrome, we have included that feature as part of our basic Panorama panel, unless the patient or physician ordering the test opts out of the 22q11.2 deletion syndrome screen. In the year ended December 31, 2015, approximately 80% of customers who ordered the basic Panorama panel directly from us also ordered screening for 22q11.2 deletion syndrome or the full microdeletions panel.

As our direct sales force has gained experience selling under the Natera name, we have developed our own strong relationships, and we have been increasing the number of our in-network contracts with payers. We also generate a higher

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gross margin when we sell testing services directly, compared to when our products are distributed by laboratory partners to be performed at our laboratory certified under CLIA. The percentage of our revenues generated through the higher margin U.S. direct sales force channel increased to approximately 77% in 2015, from approximately 59% in 2014 and approximately 45% in 2013.  

In addition to our sales force, we market to physicians through clinical journals, educational webinars, conferences, tradeshows and e-mail marketing campaigns. While we do not sell directly to patients, we do engage in brand awareness campaigns directed at patients to highlight our products. Our marketing and medical science liaison team works extensively with key opinion leaders in the prenatal genetic testing field. We also dedicate resources to assist our laboratory partner network in marketing Panorama and our other products by conducting joint events, joint advertising and developing joint tools with our partner network.

We generate the highest gross margins on royalty revenue collected from laboratories that run tests in their own facilities and have the sequencing data analyzed by our Constellation software under our cloud-based distribution model. As of February 29, 2016, four signed licensees have commercialized products using our Constellation platform. We have licensing contracts with ten other laboratory licensees, both in the United States and internationally, to develop their own NIPT LDTs and access our algorithm through our Constellation platform.

Our partners' capabilities augment our direct sales capabilities, and where we have identified laboratory or distribution partners who share our focus on premium quality and service, we also contract with them to distribute our tests. We have partnered with leading academic and commercial laboratories in the United States to capitalize on their relationships with MFMs and OB/GYNs, large distribution capabilities, and commercial infrastructure. These customers also frequently have in-network contracts with key third party payers. We and our laboratory partners have in-network contracts with insurance providers that account for over 160 million covered lives in the United States. Our target market for NIPT is a much smaller subset of these covered lives, because it excludes men, children and post-menopausal women who would not be users of the majority of our products. Outside of the United States, where our products are sold in over 60 countries, we currently sell predominantly through partner laboratories.

Our Development Pipeline in Oncology Diagnostics

We believe that our ability to interrogate genes at tens of thousands of loci in parallel in a single reaction at the scale of a single molecule is well suited to the analysis of cancer-associated genetic mutations in circulating tumor DNA, or ctDNA. In applications such as cancer therapy monitoring, cancer recurrence monitoring and early detection screening, thousands of loci must be interrogated simultaneously without splitting a sample, and sensitivity to tiny amounts of tumor DNA as low as a single molecule is crucial. We are developing a set of mmPCR panels to analyze ctDNA in plasma and identify SNVs as well as CNVs. If development is successful, we expect to be able to commercialize non-invasive oncology diagnostic products designed to guide therapy selection, measure cancer recurrence and disease load monitoring, and screen for cancer in high-risk populations. We are initially focused on these indications in lung, ovarian, and breast cancer. These are disease areas in which we believe our performance in the detection of CNVs, SNVs, and gene fusions will allow us to achieve a competitive advantage.For the development of these products, we are working with world-renowned oncology centers, such as Stanford University, Columbia University, Vanderbilt University and Cancer Research UK, on research collaborations and clinical trials.

We have demonstrated that our mmPCR platform can provide highly accurate detection of CNVs and SNVs in the plasma from patients with cancer. In a study published in the October 2015 issue of Translational Oncology, our mmPCR platform demonstrated the ability to detect CNVs in plasma with DNA concentrations of under 1%, compared to other sequencing methods which require DNA concentrations of at least 4%, for samples with a single deletion or duplication event in a given loci. Our ability to simultaneously detect both CNVs and SNVs in ctDNA at very low concentrations in standard plasma samples drives our potential opportunity in the oncology diagnostics space. In particular, because lung, ovarian and breast cancer are largely driven by CNVs, we believe that our ability to detect CNVs at low ctDNA levels will be well-suited for early detection, recurrence monitoring and therapy selection for these cancers.

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In preliminary experiments, using a non-optimized assay and mmPCR panel, we were able to detect SNV and/or CNV cancer signatures in the blood of: 92% of patients with cancerous lung nodules from stage IA through stage IIIA, 15 out of 17 of which were detected at stage I; 83% of patients with breast cancer tumors from stage I through stage III, 28 out of 35 of which were detected at stage I or II; and 100% of ovarian tumors at stage III. These results were achieved in all cases by analyzing only five regions for CNVs and, in the case of lung and breast cancer, a panel of SNVs developed from publicly available data such as the Cosmic database. Because the tumors had been previously identified in these patients, we used an approach to detect CNVs that would be used in the context of recurrence monitoring.

Our mmPCR technology was selected for use in Cancer Research UK/University College London's TRACERx clinical trial for the multi-year monitoring of patient-specific SNVs in plasma, to understand the evolution of cancer mutations over time, and to monitor patients for disease recurrence. A pilot study using blood samples collected in the TRACERx trial was published in Annals of Oncology in January 2016. In this study, we demonstrated that our multiplexed PCR technology, coupled with our proprietary algorithms, can detect both ubiquitous (clonal) and heterogeneous (subclonal) tumor mutation variants in blood samples from patients with early-stage non-small-cell lung cancer. Of 37 variants found in tumor tissue biopsies from four patients with Stage I and II lung cancer, our technology detected 16 variants in the blood samples, with at least two detected for each patient. Twenty-five percent of the variants we detected in the blood samples were heterogeneous, meaning that they occurred in only part of a tumor. Ninety-four percent of the variants detected in the blood samples were predicted driver mutations, meaning that they were likely to promote tumor growth. Analysis of cell-free DNA circulating in plasma may detect variants that, due to the heterogeneous nature of tumors, may not be detected by tissue biopsy. Detection of such variants may help physicians decide which cancer therapies are most appropriate for a specific patient.

We anticipate that we will initially commercialize these tests as LDTs in our own CLIA laboratories; we also plan to offer these tests as IVDs through our Constellation platform. Beyond the products we develop ourselves, in order to access the many opportunities in oncology, we plan to offer our automated mmPCR design tool as a service to researchers and CLIA-certified laboratories, allowing them to design their own oncology diagnostics assays and perform their own studies using our Constellation cloud software. To guide prognosis, predict relapse and assist in therapeutic decision-making, we plan to develop a panel which will include known recurrent alterations that, when identified in blood at low levels, may indicate a residual presence of cancer that can remain in the patient after treatment and during remission. The panel would be used to detect variants from the initial tumor's molecular signature in low levels of ctDNA in blood prior to the appearance of clinical symptoms in order to assist in guiding earlier decisions regarding clinical management.

Other Future Applications of our Technology

We intend to refine and expand our offering in prenatal diagnostics by leveraging our core technology and the data we gather as our sample volumes grow. For example, the microdeletion samples that we gather through Panorama NIPT or through Anora POC testing help us to refine the algorithms that detect these anomalies, determine the exact genetic regions where these anomalies are sought, and increase the PPV with which they are reported. We have substantial intellectual property covering the analysis of single cells, an approach we use to analyze embryos during in vitro fertilization, or IVF, for our Spectrum products. We believe that our technology may allow us to capitalize on future advances in isolating fetal cells from a mother's blood, which could allow us to measure more of the fetal genome non-invasively and with even higher accuracy, which would enable us to potentially replace invasive confirmatory procedures, such as amniocentesis, over time.

We believe that, in the future, our informatics technology may have the ability to generate a nearly full genome of an individual, roughly nine weeks after the individual is conceived. Publications in Genome Medicine,Science and PLoS Genetics highlight the ability of our informatics technology to determine, from tiny amounts of DNA as small as single fetal cells, which chromosome segments from the parent contributed to the DNA of the fetus, and hence to substantially reconstruct the genome of the fetus using only a tiny amount of fetal DNA. This enhanced view of the near full genome, combined with knowledge of the parent DNA, has the potential to substantially impact the management of many aspects of an individual's health, from birth through adulthood. Future applications of such an offering may include prediction of disease susceptibilities and appropriate interventions, selection of drugs and drug dosages, nutrition guidance and many other emerging applications.

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We have developed an automated tool for assay design that meaningfully streamlines our development process. When developing new diagnostic tests, we simply specify the genomic variations and regions we are interested in investigating, and our tool generates the precise mix of necessary primer designs to obtain an accurate measurement.

We also intend to provide custom services for pharmaceutical and research entities for targeted assay design and bioinformatics interpretation, in oncology as well as in other areas. Custom panels may be designed for regions of interest in various research applications such as variant discovery and mechanism of action studies, among others, and clinical applications in diagnostics and therapeutics. Some areas that we believe other researchers and laboratories may be interested in applying this technology are: cancer detection in liquid, e.g. bladder cancer, forensic identity analysis in mixtures for law enforcement, organ transplant rejection monitoring, agricultural sample screening for patented lines, prenatal relationship testing for veterinary breeding and cell line purity testing for cell repositories.

Enhanced User Experience

Natera Digital Services

We have implemented various digital services designed to enhance patient and provider experience. We recently launched our patient portal as a one-stop resource for patients to access information and services throughout their experience with our products, from pre-test to post-test. After logging on to the patient portal, patients are able to easily access information about our tests and services, order tests, track their status and access results, and pay their bill.

Natera Connect is our physician portal, which enables physicians to easily complete various tasks online including ordering tests, tracking the status of a patient's test, reviewing patient results online, sharing results with patients, connecting with genetic counselors, ordering supplies and educational materials, and offering live chat support. We also provide a service to integrate with our customers' Electronic Medical Records (“EMR”) systems to provide physicians a seamless experience of ordering tests and reviewing patient test results directly through their EMR systems.

Access to Genetic Counselors

After receiving a report with results from any of our products, doctors have access by phone to our team of genetic counselors should they have any questions or require any guidance in interpreting the results. Patients themselves may contact our genetic counselors by phone, with direct access provided to all patients who are tested with Spectrum or Anora and patients who have a high risk result for a genetic disease based on the Horizon screening or for a microdeletion syndrome based on the Panorama screening.

Phlebotomy Services

We have engaged over 2,000 phlebotomy centers in the United States. We also offer mobile phlebotomy services whereby a patient can request and schedule a phlebotomist visit at the patient’s home or office.

Publications, Presentations and On-Going Clinical Trials

Our products, their performance and scientific breakthroughs made possible by our technology have been the subject of peer-reviewed articles in the following journals: American Journal of Obstetrics & Gynecology,  Ultrasound in Obstetrics and Gynecology,  Obstetrics & Gynecology,  PLOS ONE, Fetal Diagnosis and Therapy,Prenatal Diagnosis, Fertility and Sterility Science, Genome Medicine, Molecular Human Reproduction,Human Reproduction, Journal of Clinical Embryology, and Genetics in Medicine. In addition, our technology and products have been featured in over 80 abstracts that have been presented at major medical and industry conferences since 2008. We continue to validate the efficacy of our tests in on-going clinical trials.

Additionally, we have completed our DNAFirst study, which was run through Women and Infants Hospital in Rhode Island. DNAFirst was a clinical utility trial to assess how NIPT can best be integrated into clinical practice for

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screening in the general population, including average-risk pregnancies. As part of this trial, we ran the Panorama test on over 2,600 pregnant women in Rhode Island. We have analyzed the data and expect to report the results in a future publication.

We are currently enrolling patients in the SNP-based Microdeletions and Aneuploidy RegisTry (SMART) study. In this registry study, we expect to collect postnatal DNA and clinical outcomes for 10,000 pregnancies that underwent prenatal testing for whole chromosome aneuploidy and microdeletions with Panorama. We are also collecting perinatal data from all patients and follow-up genetic samples from all participants found to be at high risk either through NIPT or other means. This would allow follow-up and additional analysis of potential correlation between fetal fraction and placental complications.

In addition to our clinical trials, we actively collect and record follow-up data from our patients who receive invasive testing after receiving Panorama. We continue to monitor the accuracy of our tests and expect to report this follow-up data in future publications.

Key Relationships

We are party to a supply agreement with Illumina, Inc. for the supply of Illumina genetic sequencing instruments and reagents. During the term of the supply agreement, which expires in September 2017, Illumina has agreed to supply us with sequencers, reagents and other consumables for use with the Illumina sequencers, and we must provide a forecast, on a monthly basis, detailing our needs for certain of the Illumina products. The first four calendar months of each forecast are binding and the fourth month can vary by only up to 25% more or less than what was forecasted for that month in the prior month's forecast. In addition, during each calendar quarter, we must spend a minimum amount on reagents under this agreement. We and Illumina have agreed on prices for the sequencers and reagents, for which we are entitled to certain discounts based on total spend and other factors. In addition, we must pay a fee to Illumina for each clinical NIPT test that we perform using Illumina reagents. Illumina is currently the sole supplier of our sequencers and related reagents for Panorama, along with certain hardware and software; we are not bound to use exclusively Illumina's sequencing instruments and reagents for conducting our sequencing, but if we do use other sequencing instruments and reagents for clinical use, we will no longer be entitled to discounts from Illumina. Illumina may terminate the agreement: if we materially breach the agreement and fail to cure such breach within 30 days after receiving written notice of such breach, and only after complying with additional notice provisions; if we become the subject of certain bankruptcy or insolvency proceedings or in connection with certain changes of control of Natera. We may terminate the agreement: if Illumina materially breaches the agreement and fails to cure such breach within 30 days after receiving written notice of such breach, and only after complying with additional notice provisions; if Illumina becomes the subject of certain bankruptcy or insolvency proceedings; in connection with certain supply failures by Illumina or for convenience with four months written notice. The agreement also contains use limitations, representations and warranties, indemnification, limitations of liability and other provisions.

Competition

We compete with numerous companies that have developed and market NIPTs, including Sequenom, Inc., Illumina, Inc., through its Verinata division, Ariosa, Inc., which was acquired by F. Hoffman La-Roche Ltd, Laboratory Corporation of America Holdings, Counsyl, Inc., Quest Diagnostics Incorporated, Premaitha Health PLC, Beijing Genomics Institute, and Berry Genomics Co., Ltd. We expect additional competition as other established and emerging companies enter the prenatal testing market, including through business combinations, and new tests and technologies are introduced. These competitors could have greater technological, financial, reputational and market access resources than us.

We also compete against companies providing carrier screening tests such as Laboratory Corporation of America Holdings, Counsyl, Inc., Good Start Genetics, Inc., Progenity, Inc., Recombine, LLC, and Quest Diagnostics Incorporated. Each of these companies offers comprehensive CS panels.

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Our future products, such as products in the field of cancer, will face competition from various companies that offer or seek to offer competing solutions. For example, Guardant Health, Inc. and Personal Genome Diagnostics, Inc., have each developed and are offering liquid biopsy tests commercially in the United States. Additionally, Foundation Medicine, Inc. has announced plans to launch a liquid biopsy test in the first quarter of this year, and Genomic Health Inc. has announced plans to launch its liquid biopsy test this year.

We believe the principal competitive factors in our market include the following:

· test performance, as demonstrated in clinical trials;

· comprehensiveness of coverage of diseases and ability to conveniently test for multiple conditions;  

· value of product offerings, including pricing and impact on other healthcare spending;  

· scope of reimbursement and payer coverage; 

· effectiveness of sales and marketing efforts; 

· breadth of distribution of products and partnership base; 

· development and introduction of new, innovative products; 

· operational execution, including test turn-around time and test failures;  

· key opinion leader support; 

· brand awareness; and 

· ease of integration for laboratories, including for cloud-based distribution models.

Specific market share data regarding our products is not publicly available, and consumers may choose to use competing products for a variety of reasons, including lower cost. We believe, however, that we compete favorably in the market on the basis of several factors, particularly test performance, comprehensiveness of coverage of diseases, ability to conveniently test for multiple conditions, value of product offerings and effectiveness of sales and marketing efforts.

Research and Development

We were founded on the belief that serious unmet needs in healthcare could be addressed by combining traditional molecular diagnostics with robust statistical techniques, and this belief is the basis of our research and development efforts. We focus our research and development efforts on conceiving and delivering disruptive technologies to genetic testing. We have invested, and continue to invest, significant time and resources toward improving and expanding our core technologies and tests. Our proprietary automated tool for assay design meaningfully streamlines our development process. Research and development expenses were $27.7 million, $17.3 million and $11.6 million for 2015, 2014 and 2013, respectively.

Intellectual Property

Our success and ability to compete depend in part on securing and preserving enforceable patent, trade secret, trademark and other intellectual property rights; operating without having competitors infringe, misappropriate or otherwise circumvent these rights; operating without infringing the proprietary rights of others; and obtaining and maintaining licenses for technology development and/or product commercialization. As of December 31, 2015, we held ten issued U.S. patents and over 100 pending U.S. and foreign patent applications. Our patents and patent applications

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relate generally to molecular diagnostics, and more specifically to biochemical and analytical techniques for obtaining and analyzing genetic information to detect genetic abnormalities in relatively small complex samples, such as circulating fetal or tumor DNA. We intend to seek patent protection as we develop new technologies and products in this area.

In the past, parties have filed, and in the future parties may file, claims asserting that our technologies or products infringe on their intellectual property. We currently face a lawsuit from a competitor asserting patent infringement, as described in "Risk Factors" and in "Legal Proceedings." We cannot predict whether other parties will assert such claims against us, or whether those claims will harm our business. The field of non-invasive prenatal genetic diagnostics is complex and rapidly evolving, and we expect that we and others in our industry will continue to be subject to third-party infringement claims.

Government Regulations

Our business is subject to and impacted by extensive and frequently changing laws and regulations in the United States (at both the federal and state levels) and internationally. These laws and regulations include regulations particular to our business and laws and regulations relating to conducting business generally (e.g., export controls laws, U.S. Foreign Corrupt Practices Act and similar laws of other jurisdictions). We also are subject to inspections and audits by governmental agencies. Set forth below are highlights of the key regulatory schemes applicable to our business.

Clinical Laboratory Improvement Amendments of 1988 and State Regulation

As a clinical laboratory, we are required to hold certain federal and state licenses, certifications and permits to conduct our business. As to federal certifications, in 1988, Congress passed the Clinical Laboratory Improvement Amendments of 1988, or CLIA, establishing more rigorous quality standards for all laboratories that perform testing on human specimens for the purpose of providing information for the diagnosis, prevention, or treatment of disease. CLIA requires such laboratories to be certified by the federal government and mandates compliance with various operational, personnel, facilities administration, quality and proficiency testing requirements intended to ensure the accuracy, reliability and timeliness of patient test results. CLIA certification is also a prerequisite to be eligible to bill state and federal healthcare programs, as well as many commercial third-party payers, for laboratory testing services. Our laboratory located in San Carlos, California is CLIA certified. Our laboratory must comply with all applicable CLIA requirements.

CLIA provides that a state may adopt laboratory regulations that are more stringent than those under federal law, and a number of states have implemented their own more stringent laboratory regulatory requirements. State laws may require that laboratory personnel meet certain qualifications, specify certain quality control procedures or facility requirements, or prescribe record maintenance requirements. We are required to meet certain laboratory licensing requirements for those states in which we sell products who have adopted regulations beyond CLIA. For more information on state licensing requirements, see "—California Laboratory Licensing" and "—New York Laboratory Licensing."

Our laboratory has also been accredited by the College of American Pathologists, or CAP, which means that our laboratory has been certified as following CAP guidelines in operating the laboratory and in performing tests that ensure the quality of our results.

FDA

In the United States, medical devices are subject to extensive regulation by the Food and Drug Administration, or FDA, under the FDC Act and its implementing regulations, and other federal and state statutes and regulations. The laws and regulations govern, among other things, medical device development, testing, labeling, storage, premarket clearance or approval, advertising and promotion and product sales and distribution. To be commercially distributed in the United States, medical devices must receive from the FDA prior to marketing, unless subject to an exemption, either clearance of a premarket notification, or 510(k), or premarket approval, or a PMA.

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IVDs are a type of medical device that can be used in the diagnosis or detection of diseases, conditions or infections, including, without limitation, the presence of certain chemicals, genetic information or other biomarkers. Predictive, prognostic and screening tests, such as carrier screening tests, can also be IVDs. A subset of IVDs are known as analyte specific reagents, or ASRs. ASRs consist of single reagents, and are intended for use in a diagnostic application for the identification and quantification of an individual chemical substance in biological specimens. ASRs are medical devices, but most are exempt from the 510(k) and PMA premarket review processes. As medical devices, ASRs have to comply with some quality system regulation, or QSR, provisions and other device requirements.

The FDC Act classifies medical devices into one of three categories based on the risks associated with the device and the level of control necessary to provide reasonable assurance of safety and effectiveness. Class I devices are deemed to be low risk and are subject to the fewest regulatory controls. Many Class I devices are exempt from FDA premarket review requirements. Class II devices, including some software products to the extent that they qualify as a device, are deemed to be moderate risk, and generally require clearance through the premarket notification, or 510(k) clearance, process. Class III devices are generally the highest risk devices and are subject to the highest level of regulatory control to provide reasonable assurance of the device's safety and effectiveness. Class III devices typically require a PMA by the FDA before they are marketed. A clinical trial is almost always required to support a PMA application and is sometimes required for 510(k) clearance. All clinical studies of investigational devices must be conducted in compliance with any applicable FDA and Institutional Review Board requirements. Devices that are exempt from FDA premarket review requirements must nonetheless comply with post-market general controls as described below, unless the FDA has chosen to exercise enforcement discretion and not regulate them.

510(k) clearance pathway. To obtain 510(k) clearance, a manufacturer must submit a premarket notification demonstrating to the FDA's satisfaction that the proposed device is substantially equivalent to a previously 510(k)-cleared device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for submission of PMA applications. The previously cleared device is known as a predicate. The FDA's 510(k) clearance pathway usually takes from three to 12 months, but it can take longer, particularly for a novel type of product.

PMA pathway. The PMA pathway requires proof of the safety and effectiveness of the device to the FDA's satisfaction. The PMA pathway is costly, lengthy, and uncertain. A PMA application must provide extensive preclinical and clinical trial data as well as information about the device and its components regarding, among other things, device design, manufacturing, and labeling. As part of its PMA review process, the FDA will typically inspect the manufacturer's facilities for compliance with QSR requirements, which impose elaborate testing, control, documentation, and other quality assurance procedures. The PMA review process typically takes one to three years but can take longer.

Post-market general controls. After a device, including a device exempt from FDA premarket review, is placed on the market, numerous regulatory requirements apply. These include: the QSR, labeling regulations, registration and listing, the Medical Device Reporting regulation (which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur), and the Reports of Corrections and Removals regulation (which requires manufacturers to report recalls and field actions to the FDA if initiated to reduce a risk to health posed by the device or to remedy a violation of the FDC Act).

The FDA enforces these requirements by inspection and market surveillance. If the FDA finds a violation, it can institute a wide variety of enforcement actions, ranging from an untitled or public warning letter to more severe sanctions such as fines, injunctions, and civil penalties; recall or seizure of products; operating restrictions, partial suspension or total shutdown of production; refusing requests for 510(k) clearance or PMA of new products; withdrawing 510(k) clearance or PMAs already granted; and criminal prosecution. For additional information, see "Risk Factors—Reimbursement and Regulatory Risks Related to Our Business."

Research use only. Research use only, or RUO, products belong to a separate regulatory classification under a long-standing FDA regulation. RUO products are not regulated as medical devices and are therefore not subject to the regulatory requirements discussed above. The products must bear the statement: "For Research Use Only. Not for Use in Diagnostic Procedures." RUO products cannot make any claims related to safety, effectiveness or diagnostic utility, and

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they cannot be intended for human clinical diagnostic use. A product labeled RUO but intended to be used diagnostically may be viewed by the FDA as adulterated and misbranded under the FDC Act and is subject to FDA enforcement activities, including requiring the supplier to seek clearance or approval for the products. Our LDT uses instruments and reagents labeled as RUO.

Laboratory-developed tests. LDTs have generally been considered to be tests that are designed, developed, validated and used within a single laboratory. The FDA has historically exercised enforcement discretion and has not required clearance or approval of LDTs prior to marketing; however, the FDA has recently indicated through draft guidance that it intends to cease enforcement discretion, which could lead to the FDA requiring pre-market clearance or approval of our tests.

On October 3, 2014, the FDA issued two draft guidance documents regarding oversight of LDTs. The draft guidance documents are titled "Framework for Regulatory Oversight of LDTs", which we refer to as "the Framework Guidance," and "FDA Notification and Medical Device Reporting for" LDTs, which we refer to as the "Notification Guidance." According to the Framework Guidance, the FDA plans to take a risk-based approach to regulating LDTs. According to the draft guidances, all labs with LDTs—except for those only performing forensic testing or certain LDTs for transplantation—would need to comply with certain basic statutory requirements, regardless of the risks of the tests, including adverse event reporting, corrections and removals reporting and registration and listing or notification. In addition, high-risk and moderate-risk tests not subject to an exemption will need to be the subject of a PMA or 510(k) submitted to the FDA in a phased-in manner. Within the high-risk devices, the FDA identifies the "highest risk devices" as (1) LDTs with the same intended use as an approved companion diagnostic; (2) LDTs with the same intended use as an FDA-approved Class III device and (3) certain LDTs for determining safety and effectiveness of blood or blood products.

With regard to premarket review, under the proposed draft guidances, the highest-risk LDTs identified above will be required to start submitting premarket submissions (generally a PMA, but in some instances a 510(k) submission) 12 months after the guidance is finalized. The premarket submission requirements for the remaining high-risk devices will be phased in over the following four years. Then, beginning in year six, moderate-risk LDTs will be subject to premarket submissions. The FDA explicitly states in the Framework Guidance that high-risk LDTs that are already on the market as of the date of implementation of the draft guidances will remain on the market while the FDA reviews the applications; FDA officials have publicly indicated that the agency will adopt the same position for moderate-risk devices. Laboratories that offer high-risk or moderate-risk tests will be required to comply with the applicable sections of the QSR at the time their PMA is submitted or 510(k) is cleared.

The comment period for the draft guidances closed February 2, 2015. The draft guidances have been the subject of considerable controversy, and it is unclear whether the draft guidances will be finalized and implemented, and if so, what the final versions will contain. In addition, Congress may act to provide further direction to the FDA on the regulation of LDTs.

We believe that all of the tests we currently offer, including Panorama, meet the definition of LDTs, as we designed, developed, and validated them for use in our CLIA-certified laboratory. Under the Framework Guidance, we believe that all of the tests we offer, except for our non-invasive prenatal paternity test, including Panorama, will be moderate-risk or high-risk tests, but not the highest risk devices.

California Laboratory Licensing

In addition to federal certification requirements for laboratories under CLIA, we are required under California law to maintain a license for our San Carlos clinical laboratory. The California licensure law establishes standards for the day-to-day operation of a clinical laboratory, including the training and skills required of personnel and quality control

If a clinical laboratory is found to be out of compliance with California standards, the California Department of Health Services, or DHS, may suspend, restrict or revoke its license to operate the clinical laboratory, assess substantial civil money penalties, or impose specific corrective action plans.

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New York Laboratory Licensing

Because we receive specimens from New York State, our clinical laboratory is required to be licensed under New York laws and regulations, which establish standards for the day-to-day operation of a clinical laboratory, including training and skill levels required of laboratory personnel; physical requirements of a facility; equipment; validation; and quality control.

If a laboratory is found to be out of compliance with New York statutory or regulatory standards, the New York State Department of Health, or DOH, may suspend, limit, revoke or annul the laboratory's New York license, censure the holder of the license or assess civil money penalties. Statutory or regulatory noncompliance may result in a laboratory's operator being found guilty of a misdemeanor under New York law. DOH also must approve each specific LDT before the test is offered in New York.

We have received a permit from New York to offer our basic Panorama test to women with high-risk pregnancies and a conditional approval to offer both our basic Panorama and Panorama with the microdeletions panel to all pregnant women, regardless of risk. We also have a permit from New York to offer our Horizon, Spectrum, Anora and non-invasive prenatal paternity tests.

Other State Laboratory Licensing Laws

In addition to New York and California, other states, including Florida, Maryland, Pennsylvania and Rhode Island, require licensing of out-of-state laboratories under certain circumstances. We have obtained licenses in these four additional states and believe we are in compliance with applicable licensing laws.

Potential sanctions for violation of state statutes and regulations include significant fines, the rejection of license applications and the suspension or loss of various licenses, certificates and authorizations, which could harm our business. CLIA does not preempt state laws that have established laboratory quality standards that are at least as stringent as federal law.

State Genetic Testing Laws

Many states have implemented genetic testing and privacy laws imposing specific patient consent requirements and protecting test results. In some cases, we are prohibited from conducting certain tests without a certification of patient consent by the physician ordering the test. Requirements of these laws and penalties for violations vary widely.

HIPAA and Other Privacy Laws

The privacy and security regulations under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, establish uniform standards governing the conduct of certain electronic healthcare transactions and require certain entities, called covered entities, to comply with standards that include the privacy and security of protected health information, or PHI. HIPAA further requires business associates of covered entities – independent contractors or agents of covered entities that have access to protected health information in connection with providing a service to or on behalf of a covered entity – to enter into business associate agreements with the covered entity and to safeguard the covered entity's PHI against improper use and disclosure.

As a covered entity and as a business associate of other covered entities (with whom we have therefore entered into business associate agreements), we have certain obligations regarding the use and disclosure of any PHI that may be provided to us, and we could incur significant liability if we fail to meet such obligations. Among other things, HITECH imposes civil and criminal penalties against covered entities and business associates and authorizes states’ attorneys general to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions.

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We are also required to comply with HIPAA standards promulgated by the U.S. Department of Health and Human Services, or HHS. First, we must comply with HIPAA's standards for electronic transactions, which establish standards for common healthcare transactions, such as claims information, plan eligibility, payment information and the use of electronic signatures. We must also comply with the standards for the privacy of individually identifiable health information, which limit the use and disclosure of most paper and oral communications, as well as those in electronic form, regarding an individual's past, present or future physical or mental health or condition, or relating to the provision of healthcare to the individual or payment for that healthcare, if the individual can or may be identified by such information. Additionally, we must comply with HIPAA's security standards, which require us to ensure the confidentiality, integrity and availability of all electronic protected health information that we create, receive, maintain or transmit, to protect against reasonably anticipated threats or hazards to the security of such information, and to protect such information from unauthorized use or disclosure.

Various states in the United States have implemented equally restrictive requirements regulating the use and disclosure of health information that are not necessarily preempted by HIPAA, particularly if they afford greater protection to individuals than HIPAA does. For example, Massachusetts law requires that any company that obtains personal information of any resident of the Commonwealth of Massachusetts implement and maintain a security program that adequately protects such information from unauthorized use or disclosure. There are also foreign privacy and security laws and regulations that impose restrictions on the access, use and disclosure of health information. As a business that operates both internationally and throughout the United States, any wrongful use or disclosure of personally identifiable information, even if it does not constitute PHI, by us or our third-party contractors, including disclosure due to data theft or unauthorized access to our or our third-party contractors' computer networks, could subject us to fines or penalties that could adversely affect our business and results of operations, including the cost of providing credit monitoring and identity theft prevention services to affected consumers.

Healthcare Fraud and Abuse Laws

The federal Anti-Kickback Statute makes it a felony for a provider or supplier, including a laboratory, to knowingly and willfully offer, pay, solicit or receive remuneration, directly or indirectly, in order to induce business that is reimbursable under any federal healthcare program. A violation of the federal Anti-Kickback Statute may result in imprisonment for up to five years and/or criminal fines of up to $25,000, civil assessments and fines up to $50,000, and exclusion from participation in Medicare, Medicaid and other federal healthcare programs. Although the federal Anti-Kickback Statute applies only to federal healthcare programs, a number of states have passed statutes substantially similar to the federal Anti-Kickback Statute pursuant to which similar types of prohibitions are made applicable to all other health plans and third-party payers. Actions which violate the federal Anti-Kickback Statute or similar laws may also involve liability under the Federal False Claims Act, which prohibits knowingly presenting or causing to be presented a false, fictitious or fraudulent claim for payment to the U.S. Government.

Federal and state law enforcement authorities scrutinize arrangements between healthcare providers and potential referral sources to ensure that the arrangements are not designed as a mechanism to induce patient care referrals and opportunities. The law enforcement authorities, the courts and Congress have also demonstrated a willingness to look behind the formalities of a transaction to determine the underlying purpose of payments between healthcare providers and actual or potential referral sources. Generally, courts have taken a broad interpretation of the scope of the federal Anti-Kickback Statute, holding that the statute may be violated if merely one purpose of a payment arrangement is to induce future referrals.

The HHS Office of Inspector General, or OIG, issued Special Fraud Alerts on arrangements for the provision of clinical laboratory services and relationships between laboratories and referring physicians. The Fraud Alerts set forth a number of practices allegedly engaged in by some clinical laboratories and healthcare providers that raise issues under the federal fraud and abuse laws, including the federal Anti-Kickback Statute. The OIG emphasized in the Special Fraud Alerts that when one purpose of such arrangements is to induce referrals of program-reimbursed laboratory testing, both the clinical laboratory and the healthcare provider (e.g., physician) may be liable under the federal Anti-Kickback Statute, and may be subject to criminal prosecution and exclusion from participation in the Medicare and Medicaid programs.

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Recognizing that the federal Anti-Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements within the healthcare industry, HHS has issued a series of regulatory "safe harbors" which, if all of their requirements are met, assure healthcare providers and other parties that they may not be prosecuted under the federal Anti-Kickback Statute. Although full compliance with these provisions ensures against prosecution under the federal Anti-Kickback Statute, the failure of a transaction or arrangement to fit within a specific safe harbor does not necessarily mean that the transaction or arrangement is illegal or that prosecution under the federal Anti-Kickback Statute will be pursued.

While we believe that we are in compliance with the federal Anti-Kickback Statute or similar laws, there can be no assurance that our relationships with physicians, hospitals and other customers will not be subject to scrutiny or will survive regulatory challenge under such laws. If imposed for any reason, sanctions under the federal Anti-Kickback Statute could have a negative effect on our business.

Both California's fee-splitting statute, Business and Professions Code Section 650, and its Medi-Cal anti-kickback statute, Welfare and Institutions Code Section 14107.2, have been interpreted by the California Attorney General and California courts in substantially the same way as the federal government and the courts have interpreted the federal Anti-kickback Statute. A violation of Section 650 is punishable by imprisonment and fines of up to $50,000. A violation of Section 14107.2 is punishable by imprisonment and fines of up to $10,000.

In addition to the requirements that are discussed above, there are several other healthcare fraud and abuse laws that could have an impact on our business. The federal False Claims Act prohibits a person from knowingly submitting or causing to be submitted false claims or making a false record or statement in order to secure payment by the federal government. In addition to actions initiated by the government itself, the statute authorizes actions to be brought on behalf of the federal government by a private party having knowledge of the alleged fraud. Because the complaints are initially filed under seal, the action may be pending for some time before the defendant is even aware of the action. If the government is ultimately successful in obtaining redress in the matter or if the private party plaintiff succeeds in obtaining redress without the government's involvement, then the private party plaintiff will receive a percentage of the recovery. Violation of the federal False Claims Act may result in fines of up to three times the actual damages sustained by the government, plus mandatory civil penalties of up to $11,000 for each separate false claim, imprisonment or both, and possible exclusion from Medicare or Medicaid.

We are also subject to a federal law directed at "self-referrals," commonly known as the Stark Law, which prohibits, with certain exceptions, payments made by a laboratory to a physician in exchange for the provision of clinical laboratory services, or presenting or causing to be presented claims to Medicare and Medicaid for laboratory tests referred by physicians who personally, or through a family member, have an investment interest in, or a compensation arrangement with, the clinical laboratory performing the tests. A person who engages in a scheme to circumvent the Stark Law's referral prohibition may be fined up to $100,000 for each such arrangement or scheme. In addition, any person who presents or causes to be presented a claim to the Medicare or Medicaid programs in violation of the Stark Law is subject to civil monetary penalties of up to $15,000 per claim submission, an assessment of up to three times the amount claimed, and possible exclusion from participation in federal governmental payer programs. Claims submitted in violation of the Stark Law may not be paid by Medicare or Medicaid, and any person collecting any amounts with respect to any such prohibited claim is obligated to refund such amounts.

Many states, including California, also have anti-"self-referral" and other laws that are not limited to Medicare and Medicaid referrals. We are subject to the California's Physician Ownership and Referral Act, or PORA. PORA generally prohibits us from billing a patient or any governmental or private payer for any diagnostic services when the physician ordering the service, or any member of such physician's immediate family, has an investment interest in or compensation arrangement with us, unless the arrangement meets an exception to the prohibition. Further, a violation of PORA is a misdemeanor and could result in civil penalties and criminal fines.

Other states have self-referral restrictions with which we have to comply that differ from those imposed by federal and California law.

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We are subject to California’s anti-markup statute, which prohibits providers from charging for a laboratory test that it did not perform unless the provider (a) notifies the patient of the name, address, and charges of the laboratory performing the test, and (b) charges no more than what he or she was charged by the clinical laboratory which performed the test. A violation of this provision can lead to imprisonment and/or fines. In addition, many states are so-called “direct-bill” states, which means that the services performed by an individual or entity must be billed by such individual or entity, thus preventing ordering physicians from marking up the cost of the services they order.

While we have attempted to comply with the federal fraud and abuse laws, California fraud and abuse laws and similar laws of other states, it is possible that some of our arrangements could be subject to regulatory scrutiny at some point in the future, and we cannot provide assurance that we will be found to be in compliance with these laws following any such regulatory review.

Further, in addition to the privacy and security regulations stated above, HIPAA created two federal crimes: healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payers. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government sponsored programs. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in fines or imprisonment.

Finally, federal law prohibits any entity from offering or transferring to a Medicare or Medicaid beneficiary any remuneration that the entity knows or should know is likely to influence the beneficiary's selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services, including waivers of copayments and deductible amounts (or any part thereof) and transfers of items or services for free or for other than fair market value. Entities found in violation may be liable for civil monetary penalties of up to $10,000 for each wrongful act. Although we believe that our sales and marketing practices are in material compliance with all applicable federal and state laws and regulations, relevant regulatory authorities may disagree, and violation of these laws or our exclusion from such programs as Medicaid and other governmental programs as a result of a violation of such laws could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Reimbursement

We receive reimbursement from commercial third-party payers and from government health benefits programs such as Medicare and Medicaid. The tests for which we receive reimbursement include Panorama, Horizon, Anora and Spectrum.

Laboratory tests, as with most other healthcare services, are classified for reimbursement purposes under a coding system known as Current Procedure Terminology, or CPT, which we and our customers must use to bill and receive reimbursement for our diagnostic tests. These CPT codes are associated with the particular test that we have provided to the patient. Once the American Medical Association establishes a CPT code, the Centers for Medicare and Medicaid Services, or CMS, establishes payment levels and coverage rules under Medicare while private payers establish rates and coverage rules independently. For most of the tests performed for Medicare or Medicaid beneficiaries, laboratories are required to bill Medicare or Medicaid directly, and to accept Medicare or Medicaid reimbursement as payment in full. On January 1, 2013, CMS implemented a new set of CPT codes but without a fee schedule for the particular codes specific to NIPTs. A new CPT code specific to NIPT for aneuploidies came into effect in January 2015. Additionally, CMS adopted a new code set for diagnosis, commonly known as ICD-10, in October 2015.The AMA has recently issued a CPT code for microdeletions, which is scheduled to go into effect in January 2017.

We currently submit for reimbursement using CPT codes that, based on the guidance of outside legal and coding experts, are determined to be the most appropriate for our testing. There is a risk that these codes may be rejected or withdrawn or that payers will seek refunds of amounts that they claim were inappropriately billed to a specific CPT code. We do not currently have a specific CPT code assigned for all of our tests, and there is a risk that we may not be able to

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obtain specific codes for such tests, or if obtained, may not be able to negotiate favorable rates for one or more of these codes.

NIPT has received positive coverage determinations for high-risk pregnancies and are reimbursed by most private payers, including United Healthcare, AETNA, Anthem, Humana, CIGNA and others. Reimbursement policies for the use of NIPT for average-risk pregnancies have not been widely established, but recent publications have analyzed the use of NIPT in the average-risk population.In particular, ISPD has issued guidelines, and ACMG has issued a statement, that are supportive of NIPT in average-risk pregnancies as well as high-risk pregnancies. ACOG and SMFM has each issued guidelines for NIPT stating that while all pregnant women should be informed of the option to receive NIPT, conventional screening methods, rather than NIPT, remain the most appropriate choice for first-line screening for average-risk pregnancies.Eight of the top 20 commercial payers in the United States have a positive coverage determination for NIPT for average-risk pregnancies.  We expect evidence to support utilization in the average-risk population in the future.

Based on AIS 2014 publication data, we and our laboratory partners have in-network contracts with insurance providers that account for over 160 million covered lives in the United States. Our target market for NIPT is a much smaller subset of these covered lives, because it excludes men, children and post-menopausal women who would not be users of our products.

Employees

As of December 31, 2015, we had 716 employees, including 181 in laboratory operations and manufacturing administration, 125 in research and development and 410 in sales, general and administrative functions. We have not been subject to labor action or union activities, and our management considers its relationships with employees to be good.

Glossary of Terms

ACOG – the American Congress of Obstetricians and Gynecologists.

ACMG – the American College of Medical Genetics and Genomics.

CNV – copy number variation; a genetic mutation in which relatively large regions of the genome have been deleted or duplicated.

ctDNA – circulating tumor DNA.

CS test – carrier screening test.

Fetal aneuploidy – an inherited genetic condition in which a fetus has a different number of chromosomes than are typical.

Gene fusion – an abnormality in which DNA segments from two different genes are exchanged, forming one fused gene. Gene fusions have been implicated in the development of cancer tumors.

ISPD – the International Society for Prenatal Diagnosis.

IVD – in vitro diagnostic; tests that can be used in any laboratory that has the appropriate qualifications and authorizations.

LDT – laboratory developed test; tests that are designed, developed, validated and used within a single laboratory.

MFM – maternal fetal medicine.

Microdeletion – a deletion of a region of DNA from one copy of one chromosome.

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mmPCR – massively multiplexed polymerase chain reaction.

NGS – next-generation sequencing; a DNA sequencing technology.

PPV – positive predictive value; the likelihood that a positive result on a test indicates a true positive result in the patient.

Sensitivity – the likelihood that an individual with a condition will be correctly found to have that condition. Sensitivity is calculated as the ratio between the number of individuals that test positive for the condition over the total number of individuals in the tested cohort who actually have the condition.

Signal to noise ratio – the ratio of useful information to irrelevant data.

SMA – spinal muscular atrophy.

SMFM – the Society for Maternal Fetal Medicine.

SNP – single nucleotide polymorphism; a position on the chromosome at which single DNA base changes are common in the population.

SNV – single nucleotide variant; a genetic mutation in which a single chemical base in DNA has changed.

Specificity – the likelihood that an individual without a condition will be correctly found not to have that condition. Specificity is calculated as the ratio between the number of individuals that test negative for a condition over the total number of individuals in the tested cohort who do not have the condition.

Triploidy – a type of fetal aneuploidy in which an individual has three copies of every chromosome instead of two.

Financial Information about Segments and Geographic Areas

We operate in one segment.  For information regarding our revenues by geographic location, please refer to Note 15 to our consolidated financial statements in this annual report on Form 10-K. All of our long-lived assets are located in the United States. For information regarding risks associated with our international operations, please refer to the section entitled “Risk Factors”.

Corporate Information

We were initially formed in California as Gene Security Network, LLC in November 2003. We were incorporated in Delaware in January 2007, and we changed our name to Natera, Inc. in January 2012. Our principal executive offices are located at 201 Industrial Road, Suite 410, San Carlos, California 94070, and our telephone number is (650) 249-9090. Our website address is www.natera.com. We do not incorporate the information on, or accessible through, our website into this annual report on Form 10-K, and you should not consider any information on, or accessible through, our website as part of this annual report on Form 10-K.

Available Information

We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. Copies of our reports on Form 10-K, Form 10-Q and Form 8-K, may be obtained, free of charge, electronically through our Internet website, http://investor.natera.com.

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ITEM 1A.RISK FACTORS

Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this report, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our condensed consolidated financial statements and related notes, before investing in our common stock. The risks and uncertainties described below are not the only ones we face. If any of the following risks actually occurs, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the price of our common stock could decline and you could lose part or all of your investment.

Risks Related to Our Business and Industry

We derive most of our revenues from Panorama, and if our efforts to further increase the use and adoption of Panorama or to develop new products in the future do not succeed, our business will be harmed.

For the years ended December 31, 2015, 2014 and 2013, 73%, 73% and 56%, respectively, of our revenues were derived from sales of Panorama. Although we derive some revenues from our other products, we expect to continue to derive a significant portion of our revenues from the sales of Panorama, at least in the near term. Continued and additional market acceptance of Panorama and our ability, through our direct sales efforts and through laboratory partners and licensees, to attract new customers are key elements to our future success. The market demand for NIPTs has grown in recent periods and is evolving, but this market trend may not continue or, even if it does continue to grow, physicians may not recommend and order Panorama, and our laboratory partners and licensees may not actively or effectively market Panorama.

Our ability to increase sales and establish significant levels of adoption and reimbursement for Panorama is uncertain, and we may never be able to achieve profitability for many reasons, including, among others:

· the NIPT market may not grow as we expect, and NIPTs may not gain acceptance for use in the average-risk pregnancy population or for screening for microdeletions, which would limit the market for Panorama;

· laboratories, clinics, clinicians, physicians, payers and patients may not adopt use of Panorama on a broad basis, and may not be willing to pay the price premium over other NIPTs that we have, to date, been able to achieve, if we are unable to demonstrate to these constituencies that Panorama is superior to competing NIPTs;

· third-party payers, such as commercial insurance companies and government insurance programs, may decide not to reimburse for Panorama, may not reimburse for uses of Panorama for the average-risk pregnancy population or for the screening of microdeletions, or may set the amounts of such reimbursements at prices that do not allow us to cover our expenses; in fact, most third-party payers currently have negative coverage determinations for average-risk patient populations and some third-party payers do not reimburse for microdeletions screening;

· the results of our clinical trials and any additional clinical and economic utility data that we may develop, present and publish or that comes from the commercial use of Panorama may be inconsistent with prior data, raise questions about the performance of Panorama, or may fail to convince laboratories, clinics, clinicians, physicians, payers or patients of the value of Panorama;

· we and our laboratory partners and licensees may not be able to maintain and grow effective sales and marketing capabilities, and our sales and marketing efforts may fail to effectively reach customers or effectively communicate the benefits of Panorama;

· our laboratory partners may choose to offer tests provided by our competitors due to pricing or other reasons, as has happened in the past, or otherwise fail to effectively market Panorama;

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· we have expanded our direct sales force in the United States, relying to a much greater extent on our direct sales efforts and our own reimbursement arrangements with payers;

· we may experience supply constraints, including due to the failure of our key suppliers to provide required sequencers and reagents, including with respect to the required sequencers and reagents from our supplier, Illumina, Inc., which is also one of our main competitors in the NIPT market through its Verinata division;

· we may experience increased costs and expenses – for example, we experienced increases in cost of product revenues as a percentage of total revenues in the year ended December 31, 2015 compared to the prior year, primarily resulting from increases in cost per test associated with our microdeletions panel, as well as an increase in test volumes for Horizon, which has a higher cost per test than Panorama;

· the U.S. Food and Drug Administration, or the FDA, or other U.S. or foreign regulatory or legislative bodies may adopt new regulations or policies, or take other actions that impose significant restrictions on our ability to market and sell Panorama or our other tests, including requiring FDA clearance or approval for the sale of Panorama or of the sequencers, reagents, kits and other consumable products that we purchase from third parties in order to perform our testing;

· a more effective and/or less expensive test for risk assessment of chromosome conditions in fetuses may be developed and commercialized; and

· we may fail to adequately protect our intellectual property relating to Panorama or others may claim we infringe their intellectual property rights.

If the market for Panorama or our market share fail to grow or grow more slowly than expected, our business, operating results and financial condition will be harmed.

We have incurred losses since our inception and we anticipate that we will continue to incur losses for the foreseeable future, which could harm our future business prospects.

We have incurred net losses each year since our inception in 2003. To date, we have financed our operations primarily through private placements of preferred stock, convertible debt and other debt instruments, and our initial public offering. Our net loss for the years ended December 31, 2015, 2014 and 2013 was $70.3 million, $5.2 million and $37.1 million, respectively. As of December 31, 2015 and 2014, we had an accumulated deficit of $250.1 million and $179.8 million, respectively. Such losses are expected to increase in the future as we continue to devote a substantial portion of our resources to efforts to increase adoption of, and reimbursement for, Panorama and our other products, improve these products, and research and develop future diagnostic solutions, including in the field of cancer. In addition, the rate of growth in our product revenues in the United States as well as internationally has decreased, remaining relatively flat in the three months ended September 30, 2015 compared to the same period in the prior year, and growing only approximately 6% in the three months ended December 31, 2015 compared to the same period in the prior year. Furthermore, a significant element of our business strategy has been, and will continue to be, to increase our in-network coverage with third-party payers; however, the negotiated fees under our contracts with third-party payers are typically lower than the list price of our tests, and in some cases the third-party payers that we contract with have negative coverage determinations for some of our offerings, such as Panorama for the average-risk pregnancy population. Therefore, going in-network with third-party payers can have an adverse impact on our revenues if we are unable to increase adoption of, and favorable coverage determinations for reimbursement for, our products.

As a result of our limited operating history, our ability to forecast our future operating results, including revenues, cash flows and profitability, is limited and subject to a number of uncertainties. We have also encountered and will continue to encounter risks and uncertainties frequently experienced by growing companies in the life sciences and technology industry, such as those described in this report. If our assumptions regarding these risks and uncertainties are incorrect or these risks and uncertainties change due to changes in our markets, or if we do not address these risks successfully, our operating and financial results may differ materially from our expectations, and our business may suffer.

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Uncertainty in the development and commercialization of our enhanced or new tests, including future cancer products, could materially adversely affect our business, financial condition and results of operations.

Our success will depend in part on our ability to effectively introduce enhanced or new tests. We continue to focus our research and development efforts on NIPTs, with an increasing effort to expand our platform and apply our expertise in processing and analyzing cell free DNA to the field of cancer. The development of enhanced or new tests is complex, costly and uncertain. Furthermore, enhancing or developing new tests requires us to accurately anticipate patients', clinicians' and payers' attitudes and needs and emerging technology trends. We may experience research and development, regulatory, marketing and other difficulties that could delay or prevent our introduction of enhanced or new tests. The research and development process in molecular diagnostics generally takes a significant amount of time from the research and design stage to commercialization. This process is conducted in various stages, and each stage presents the risk that we will not achieve our goals. For example, any tests that we may enhance or develop may not prove to be clinically effective in clinical trials or otherwise, or we may otherwise have to abandon a test in which we have invested substantial resources.

The launch of any new diagnostic tests, including those in the field of cancer, requires the completion of certain clinical development and commercialization activities and the expenditure of additional cash resources. Clinical development requires large numbers of patient specimens and, for certain products, may require large, prospective, and controlled clinical trials. We may not be able to collect a sufficient number of appropriate specimens in a timely manner to complete clinical development for any planned diagnostic test, or we may be unable to afford or manage the large-sized clinical trials that some of our planned future products may require. We cannot assure you that we can successfully complete the clinical development of any other diagnostic test, or that we can establish or maintain the collaborative relationships that may be essential to our clinical development and commercialization efforts. Such failures could prevent or significantly delay our ability to research, develop, complete clinical development and validation, obtain FDA clearance or approval as may be necessary or desired, or launch any of our planned diagnostic tests, including those in the field of cancer. Any failure to complete on-going clinical studies for our planned diagnostic tests could have a material adverse effect on our business, operating results or financial condition.

We cannot be certain that:

· we will be able to develop any test that meets our desired target product profile in order to address the relevant clinical need or commercial opportunity;

· we will be able to obtain necessary regulatory authorizations in a timely manner or at all;

· we will be able to develop the sales and marketing operations or enter into collaborative arrangements to achieve market awareness and demand;

· we and our laboratory partners and licensees will successfully market, or healthcare providers will order or use, or third-party payers will reimburse (and if so, to what extent), any tests that we may enhance or develop;

· any tests that we may enhance or develop can be provided at acceptable cost and with appropriate quality;

· our current or future competitors will not introduce tests that have superior performance, lower prices or other characteristics that cause physicians to recommend, and consumers to choose, such competitive tests over our enhanced or newly-developed tests; or

· our tests will not infringe patents held by third parties in key jurisdictions.

These and other factors beyond our control could result in delays in the research and development, approval, production, launch, marketing or distribution of enhanced or new tests could adversely affect our competitive position and results of operations.

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Our quarterly results may fluctuate significantly, which could adversely impact the value of our common stock.

Our quarterly results of operations, including our revenues, gross margin, profitability and cash flows, may vary significantly in the future, and period-to-period comparisons of our operating results may not be meaningful. Accordingly, our quarterly results should not be relied upon as an indication of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control. Factors that may cause fluctuations in our quarterly financial results include, without limitation, those listed elsewhere in this "Risk Factors" section. In addition, our quarterly results may fluctuate due to the fact that we recognize costs as they are incurred, but there is typically a delay in the related revenue recognition as we record most revenue only upon receipt of payment. Accordingly, to the extent sales increase, we may experience increased losses unless and until the related revenues are recognized. In addition, as we ramp up our internal sales and marketing and research and development efforts, we expect to incur costs in advance of achieving the anticipated benefits of such efforts. Finally, as we increase utilization of our cloud-based distribution model by additional laboratory licensees, we may experience decreased revenues or slower revenue growth as the cost per test will be lower than for our laboratory-based model. Fluctuations in quarterly results may adversely impact the value of our common stock. We may also face competitive pricing or reimbursement pressures, and we may not be able to maintain our premium pricing in the future, which would adversely affect our operating results.

If our laboratory partners do not effectively market or sell, or decide to stop selling, our products, and we are not able to offset the resulting impact to our gross profit through our direct sales efforts or through agreements with new partners, our commercialization activities may be impaired and our financial results could be adversely affected.

While we have expanded our U.S. direct sales force to increase our direct sales, a significant element of our commercial strategy remains to establish and leverage relationships with our laboratory partners to sell Panorama and our other products, both in the United States and internationally. Distributing Panorama and our other products through partners reduces our control over our revenues, our market penetration and our gross margin on sales by the partner if we could have otherwise made that sale through our direct sales force. The financial condition of these laboratories could weaken, these laboratory partners could stop selling our products, reduce their marketing efforts in respect of our products, or otherwise breach their agreements with us. Furthermore, our laboratory partners may infringe the intellectual property rights of third parties, misappropriate our trade secrets or use our proprietary information in such a way as to expose us to litigation and potential liability. Disagreements or disputes with our laboratory partners, including disagreements over customers, proprietary rights or our or their compliance with contractual obligations, might cause delays or impair the commercialization of Panorama or our other tests, lead to additional responsibilities for us with respect to new tests, or result in litigation or arbitration, any of which would divert management attention and resources and be time consuming and expensive.

In addition, we face the risk of our laboratory partners terminating their relationship with us and completely suspending the sale of our products. Both Quest Diagnostics Incorporated, or Quest, and Progenity, Inc., or Progenity, who were our two largest laboratory partners in 2013, terminated their agreements with us in 2014. Each began promoting the NIPT of a different one of our competitors, and Quest currently promotes its own NIPT. As Quest and Progenity have done, other laboratory partners may decide to exercise their termination rights under our contracts, or any laboratory partner that is not bound by obligations of exclusivity or non-competition to us or our products could decide to sell a competing product and may choose to promote such tests in addition to or in lieu of our tests. Moreover, our partners could merge with or be acquired by a competitor of ours or a company that chooses to de-prioritize the efforts to sell our products. For example, Bio-Reference was acquired by OPKO Health, Inc., and we cannot assure you that this acquisition will not impact, or cause termination of, our agreement with Bio-Reference.

If our partnerships are not successful, our ability to increase sales of Panorama and our other products and to successfully execute our strategy could be compromised.

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If we are unable to compete successfully with either existing or future prenatal testing products or other test methods, we may be unable to increase or sustain our revenues or achieve profitability.

We are in the molecular testing field, which is characterized by rapid technological changes, frequent new product introductions, changing customer preferences, emerging competition, evolving industry standards, and price competition. Our principal competition comes from existing testing methods, technologies and products, including other NIPTs and carrier screening tests offered by our competitors, used by obstetricians and gynecologists, or OB/GYNs, maternal fetal medicine, or MFM, specialists or in vitro fertilization, or IVF, centers. Established, traditional first-line prenatal screening methods, such as serum protein measurement, where doctors measure certain hormones in the blood, and invasive prenatal diagnostic tests like amniocentesis, have been used for many years and are therefore difficult to change or supplement. Moreover, many companies in our markets are offering, or may soon offer, products and services that compete with our tests, in some cases at a lower cost than ours. We cannot assure you that research and discoveries by other companies will not render our existing or potential tests uneconomical or result in tests superior to our existing tests and those we develop. We also cannot assure you that any of our existing tests or tests that we develop will be preferred by patients, physicians or payers to any existing or newly developed technologies or tests.

We compete with numerous companies in the genetic diagnostics space. Our competitors in NIPT include Sequenom, Inc., Illumina, Inc., through its Verinata division, Ariosa, Inc., which was acquired by F. Hoffman La-Roche Ltd in 2014, Laboratory Corporation of America Holdings, Counsyl, Inc., Quest, Premaitha Health PLC,BGI, and Berry Genomics Co., Ltd. Our competitors in carrier screening include Laboratory Corporation of America Holdings, Counsyl, Inc., Good Start Genetics, Inc., Progenity and Quest. In addition, our future products, such as products in the field of cancer, will face competition from various companies that offer or seek to offer competing solutions. There are currently other companies, such as Guardant Health, Inc. and Personal Genome Diagnostics, Inc., that have developed and are offering commercially in the United States clinical cancer diagnostic tests that examine blood samples, rather than solid tumor biopsies, which are the type of cancer diagnostic tests that we are seeking to develop. Additionally, Foundation Medicine, Inc. has announced plans to launch a liquid biopsy test in the first quarter of this year, and Genomic Health Inc. has also announced plans to launch its liquid biopsy test this year. Our planned cancer products are in very early stages of research and development, and we expect that the number of competitors in this space will continue to increase as we conduct our development and commercialization activities.

Some of our competitors’ products are sold at a lower price than our products. Tests and services being offered or developed by these and other companies could cause sales of our tests and services to decline or force us to reduce our prices. Our current and future competitors could have greater technological, financial, reputational and market access advantages than us, and we may not be able to compete effectively against them. Increased competition is likely to result in pricing pressures, which could harm our revenues, operating income or market share. If we are unable to compete successfully, we may be unable to increase or sustain our revenues or achieve profitability.

Our cloud-based distribution model may be difficult to implement.

We have only recently begun to deploy our bioinformatics technology for use by other laboratories by making it available through a cloud-based distribution model. This model relies on clinical laboratories in the United States and around the world taking a license from us under which the laboratory would develop and run its own NIPT or other molecular testing assays based on our technology in its own facilities and then access our proprietary algorithms through our Constellation software in the cloud for the analysis of the assay results. In the diagnostics industry, the market for cloud-based solutions and services is not as mature as the market for on-premise enterprise software, and it is uncertain how quickly and to what extent our cloud-based distribution model will achieve and sustain high levels of customer demand and market acceptance.

Deploying this new cloud-based distribution model involves risks, significant costs and potential liabilities and is dependent upon the skills, experience and efforts of our management and other employees and our relationship with, and efforts of, our licensees. We do not know whether we can build or support this model to scale. Among the risks to our business and results of operations are the following:

· our ability to execute the strategy in a timely or efficient manner or at all;

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· our and our licensees' ability to obtain required regulatory authorizations from the FDA and international regulatory agencies;

· disruption of our business and distraction of our employees and management;

· licensing portions of our proprietary technology to third parties that may not take the same security precautions as we do to protect this information; and

· an inability to achieve anticipated benefits and costs savings.

We do not know whether clinical laboratories will adopt this method of using our products and services in sufficient volume. As of February 29, 2016, we have signed agreements with only 14 licensees under our cloud-based distribution model. Only three of these licensees, all outside the United States, have commercially launched an NIPT product using Constellation, and one licensee is currently using Constellation commercially to market its non-invasive prenatal paternity test. Other licensees for our cloud-based model are in earlier stages of development and still other potential licensees are in the contract negotiation stage. The rate of adoption of our cloud-based distribution model will depend on a number of factors, including the cost, performance and perceived value associated with our solution, as well as our ability to address security, privacy and regulatory requirements or concerns. In addition, our cloud-based software will need to be compatible with whatever next-generation sequencing, or NGS, hardware a clinical laboratory is using. Because we do not control the manufacturing and specifications of the NGS equipment, some clinical laboratories may not be able to use this model.

If we or other cloud-based solution providers experience security incidents, loss of customer data or disruptions in delivery or other problems, the market for cloud-based solutions in the diagnostics industry, including our solutions, may be adversely affected. Such events could also result in potential lawsuits and liability claims, which could have a material adverse effect on our business. If there is a reduction in demand for cloud-based solutions caused by technological challenges, weakening economic conditions, security or privacy concerns, competing technologies and products, decreases in corporate spending or other challenges, we may not be able to execute our planned business model, and our results of operations may be adversely affected.

We cannot assure you that we will be able to successfully implement the cloud-based distribution model or that implementation will result in benefits or cost savings at the levels that we anticipate or at all. 

We may be unable to commercialize our cloud-based distribution model if we do not comply with ongoing FDA regulatory requirements, including if we are required to obtain FDA clearance to market our software for diagnostic purposes.

We utilize our Constellation software to aid in the calculation of test data. Laboratories utilizing our technology may have access to this software in our cloud-based distribution model. It is possible that we will need to obtain regulatory clearance for our Constellation software in order for it to be used by third parties in the conduct of their diagnostic tests based on our technology. We are currently engaged in discussions with the FDA regarding the regulatory status of our Constellation software to make calls of copy number variants, which could be used to support our cloud-based distribution model for NIPT in the United States. The FDA has indicated to us that our Constellation software may be appropriate for review under the de novo classification process. However, the FDA has not committed to this position and may take a different position in the future. The FDA has stated that it will not prevent us from marketing Constellation in the United States while we continue to discuss with the FDA how it will be regulated; however, it is possible that the FDA may reverse itself on the issue of our ability to continue to market Constellation during our discussions. The FDA's decision about the appropriate pathway could also be impacted by its plans to regulate LDTs, as outlined in the October 3, 2014 draft guidances described in the risk factor entitled "—If the FDA were to begin actively regulating our tests as outlined in the FDA's October 3, 2014 draft guidances, we could incur substantial costs and delays associated with trying to obtain premarket clearance or approval and incur costs associated with complying with post-market controls." If necessary, we intend to seek regulatory clearance for our Constellation software for diagnostic purposes; however, we cannot guarantee

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that we will obtain clearance. If clearance is required and we are unable to obtain it, we would be unable to commercialize our cloud-based distribution model in the United States.

If our Constellation software is regulated as a device, we will be subject to ongoing FDA obligations and continued regulatory oversight and review, including compliance with requirements such as the quality system regulation, or QSR, which establishes extensive requirements for quality assurance and control as well as manufacturing procedures; the listing of our devices with the FDA; adverse event and malfunction reporting; corrections and removals reporting; and labeling and promotional requirements. We may also be subject to additional FDA post-marketing obligations. If we are not able to maintain regulatory compliance, we may not be permitted to offer Constellation and may be subject to enforcement action by the FDA, such as the issuance of warning or untitled letters, fines, injunctions and civil penalties; recall or seizure of products; operating restrictions and criminal prosecution. In addition, if a test developed by any of our licensees using our cloud-based distribution model in the United States is found not to be an LDT, or that licensee has difficulty obtaining the reagents and sequencing equipment for any regulatory, supply chain, or other reason, the licensee may not be able to market its test, and we would not receive the revenues anticipated from that licensee.  

Implementation of our cloud-based distribution model may negatively impact our financial results and results of operations.

Under our cloud-based distribution model, third party laboratories perform the molecular biology analysis in their own laboratories and access our bioinformatics algorithms in the cloud through our Constellation software to analyze their results. Although we receive license fees for use of our bioinformatics technology, because we do not process these tests and perform the molecular biology analysis in our laboratory, we are not able to charge as high an amount per test as when we perform the entire test ourselves. If our cloud-based distribution model does not lead to a sufficient increase in volume of tests sold to offset the lower revenues per test, our overall revenues will be lower, and our results of operations may be adversely affected, if the reduction in costs from not performing the entire test does not offset the lower revenues per test.

We may be subject to increased compliance risks as a result of our rapid growth, including our increased growth in and dependence on our direct sales force.

The percentage of our revenues attributable to our U.S. direct sales for the years ended December 31, 2015, 2014 and 2013 was 77%, 59% and 45%, respectively. During these periods we experienced rapid growth in our internal sales force, which is dispersed throughout the United States, and in our billing and marketing personnel, which has required us to expand our training and compliance efforts in line with the increase in headcount in these functions. We have taken and continue to take steps to implement appropriate monitoring of our sales, billing and other personnel; however, we have in the past experienced, and we cannot assure you that we will not in the future experience, situations in which employees fail to adhere to our policies. To the extent that there is any failure, whether actual or perceived, by our employees to follow our policies, we may incur additional training and compliance costs, or may receive inquiries from third-party payers or other third parties, or be held liable or otherwise responsible for such acts of non-compliance. Any of the foregoing could adversely affect our cash flow and financial condition.

We rely on third-party data centers to host our cloud-based software, and any interruptions of service or failures may impair the delivery of our cloud-based software and harm our business.

We currently provide and will continue to provide our cloud-based Constellation software to our laboratory licensees through third-party data center hosting facilities located in the United States. Any technical problems that may arise in connection with the third-party data center hosting facilities could result in interruptions in our service. These types of problems may be caused by a variety of factors, including infrastructure changes, human or software errors, viruses, security attacks, fraud, spikes in customer usage and denial of service issues. Interruptions in our service may reduce our revenue, cause us to issue refunds, cause laboratory licensees to terminate their contracts with us, or adversely affect our ability to attract new laboratory licensees. We could also be exposed to potential lawsuits and liability claims. Our business will also be harmed if our current or potential laboratory licensees believe our service is unreliable.

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If our products do not perform as expected, our operating results, reputation and business will suffer.

Our success depends on the market's confidence that we can provide reliable, high-quality genetic testing results. There is no guarantee that the accuracy and reproducibility we have demonstrated to date will continue as our test volume increases and the types of tests we offer expands. We believe that our customers are likely to be particularly sensitive to test limitations and errors, including inaccurate test results and the need on occasion to perform second blood draws on patients. As a result, if our tests do not perform as expected, our operating results, reputation, and business will suffer. We may be subject to legal claims arising from such limitations, errors, or inaccuracies.

Panorama and our other products use a number of complex and sophisticated biochemical and bioinformatics processes, many of which are highly sensitive to external factors. An operational or technological failure in one of these complex processes or fluctuations in external variables may result in sensitivity and specificity rates that are lower than we anticipate or that vary between test runs, or in a higher than anticipated number of tests which fail to produce results. In addition, we regularly evaluate and refine our testing process. These refinements may result in unanticipated issues that may reduce our sensitivity and specificity rates.

We rely on third-party laboratories to perform some of our testing.

We and our subsidiaries outsource the portions of testing that we do not perform in-house to third-party CLIA laboratories. A significant portion of our Horizon carrier screening testing is performed by third-party laboratories. These third-party laboratories are subject to contractual obligations to perform this testing for us, but are not otherwise under our control. We therefore do not control the capacity and quality control efforts of these third-party laboratories other than through our ability to enforce contractual obligations on volume and quality systems, and we have no control over such laboratories’ compliance with applicable legal and regulatory requirements. In the event of any adverse developments with these third-party laboratories or their ability to perform this testing in accordance with the standards that we and our customers expect, our ability to provide our Horizon test to customers may be delayed or interrupted, which could result in a loss of customers and harm to our reputation. Although we have more than one third-party laboratory performing this testing in order to avoid single sourcing, we may not have sufficient alternative backup if one or more of the third-party laboratories are unable to satisfy our demand for this testing. Any natural or other disaster, acts of war or terrorism, shipping embargoes, labor unrest or political instability or similar events at one or more of our third-party laboratories' facilities that causes a loss of testing capacity would heighten the risks that we face. Changes to or termination of our agreements or inability to renew our agreements with these third-party laboratories or enter into new agreements with other laboratories that are able to perform such testing could impair, delay or suspend our efforts to market and sell the Horizon carrier screening test. In addition, certain third-party payers, including some state Medicaid payers, that we are under contract with may take the position that sending out this testing to third-party laboratories and billing for such tests is contrary to the terms of our contract and may refuse to pay us for the testing. If any of these events occur, our business, financial condition and results of operations could suffer. Some state laws impose anti-markup restrictions that prevent an entity from realizing a profit margin on outsourced testing. If we or our subsidiaries are unable to markup outsourced testing, our revenues and operating margins would suffer.

If we are unable to successfully grow revenues for our products in addition to Panorama, our business and results of operations may be adversely affected.

Our ability to successfully grow revenues for our products in addition to Panorama, such as Horizon, Spectrum, and Anora, is uncertain and is subject to risks, including that the adoption and demand for such products may not grow as we expect, we may not be able to demonstrate that our products are equivalent to or superior to competing products, we and our laboratory partners may not be able to maintain and grow effective sales and marketing capabilities, our laboratory partners may choose to more actively or exclusively market tests by competitors, we may experience supply constraints, and we may fail to adequately protect our intellectual property relating to our products or others may claim we infringe their intellectual property rights. If we are not able to increase adoption of and grow revenues for these products, our business and results of operations may be adversely affected.

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If the results of our clinical studies do not support the use of our tests, particularly in the average-risk pregnancy population or for microdeletions screening, or cannot be replicated in later studies required for regulatory approvals or clearances, our business, financial condition, results of operations and reputation could be adversely affected.

As the healthcare reimbursement system in the United States evolves to place greater emphasis on comparative effectiveness and outcomes data, we cannot predict whether we will have sufficient data, or whether the data we have will be presented to the satisfaction of any payers seeking such data in the process of determining coverage for our tests, particularly in the average-risk pregnancy population for which such data is expected to be of particular interest, or for microdeletions screening using our Panorama test.

The publication of clinical data in peer-reviewed journals is a crucial step in commercializing and obtaining reimbursement for tests such as ours, and our inability to control when, if ever, results are published may delay or limit our ability to derive sufficient revenues from any test that is the subject of a study. Peer-reviewed publications regarding our tests may be limited by many factors, including delays in the completion of, poor design of, or lack of compelling data from clinical studies, as well as delays in the review, acceptance and publication process. If our tests or the technology underlying our current tests or future tests do not receive sufficient favorable exposure in peer-reviewed publications, the rate of clinician adoption of our tests and positive reimbursement coverage determinations for our tests could be negatively affected.

The administration of clinical and economic utility studies, which are becoming more critical to commercial success, is expensive and demands significant attention from certain members of our management team. Data collected from these studies may not be favorable or consistent with our existing data, or may not be statistically significant or compelling to the medical community.

In addition, test development, including development of the data necessary to obtain clearance and approval, is time consuming and carries with it the risk of not yielding the desired results. The performance achieved in published studies may not be repeated in later studies that may be required to obtain FDA premarket clearance or approval. Limited results from earlier-stage verification studies may not predict results from studies in larger numbers of subjects drawn from more diverse populations over a longer period of time. Unfavorable results from ongoing preclinical and clinical studies could result in delays, modifications or abandonment of ongoing analytical or future clinical studies, or abandonment of a product development program, or may delay, limit or prevent regulatory approvals or clearances or commercialization of our product candidates.

If our sole laboratory facility becomes inoperable, we will be unable to perform our tests and our business will be harmed.

We do not currently have redundant laboratory facilities, other than third-party laboratories that we employ to perform our Horizon carrier screen testing. Our San Carlos, California laboratory facility is situated near active earthquake fault lines. Our facilities may be harmed or rendered inoperable (or samples could be damaged or destroyed) by natural or manmade disasters, including earthquakes, flooding, power outages and contamination, which may render it difficult or impossible for us to perform our tests for some period of time. The inability to perform our tests or the backlog of tests that could develop if our facility is inoperable for even a short period of time may result in the loss of customers or harm our reputation.

We rely on a limited number of suppliers or, in some cases, single suppliers, for some of our laboratory instruments and materials and may not be able to find replacements or immediately transition to alternative suppliers.

We have sourced and will continue to source components of our technology, including sequencers, reagents, tubes and other laboratory materials, from third parties. In particular, our sequencers, certain reagents and blood collection tubes are sole sourced. For example, Illumina is currently the sole supplier of our sequencers and related reagents for Panorama, along with certain hardware and software, pursuant to a supply agreement that expires in September 2017. Without sequencers and the related reagents, we would be unable to run our tests and commercialize our products. In early 2013, prior to our entering into our agreement with Illumina, Illumina completed its acquisition of Verinata Health Inc.,

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our direct competitor in the NIPT market. We understand Illumina supplies the same or similar sequencers and consumables to Verinata. Because of Illumina's acquisition of Verinata, we face increased risk and uncertainty regarding continuity of a successful working relationship with Illumina under the current supply agreement, including with respect to our ability to compete with Verinata in the marketplace based on test price and in view of economic advantages enjoyed by Verinata associated with the cost of sequencers and related consumables. We also face risk and uncertainty regarding our ability to renew the supply agreement at all or on financial or commercial terms that are attractive or acceptable to us. Our failure to maintain a continued supply of the sequencers and reagents, along with the right to use certain hardware and software, would adversely impact our business, financial condition, and results of operations. In the event that it is in our commercial or financial interest or we are forced to transition sequencing platforms, we may not be successful in selecting, acquiring on commercially reasonable terms, and implementing an alternative platform that is satisfactory for our needs or that we can employ in a commercially sustainable way.

In addition, Streck, Inc. is the sole supplier of the blood collection tubes included in our Panorama test. The blood collection tubes are intended for research use only and are labeled as RUO. As discussed further in the risk factor entitled “—Changes in the way the FDA regulates the reagents, other consumables, and testing equipment we use when developing, validating, and performing our tests could result in delay or additional expense in bringing our tests to market or performing such tests for our customers,” the FDA may determine that a product labeled RUO is intended to be used diagnostically, and could take enforcement action against the supplier of the product. If this were to occur with respect to Streck or any of our other suppliers of RUO products, we would be required to obtain one or more alternative sources of these products, and we may not be able to do so on commercially reasonable terms or at all.

Our failure to maintain a continued supply of components, or a supply that meets quality control requirements, particularly in the case of sole suppliers, would materially and adversely harm our business, financial condition, and results of operations. Changes to or termination of our agreements or inability to renew our agreements with these parties or enter into new agreements with other suppliers could result in the loss of access to important components of our tests and could impair, delay or suspend our commercialization efforts, including efforts to market and commercialize Panorama. In the event of any adverse developments with our sole suppliers, our ability to supply our products may be interrupted, and obtaining substitute components could be difficult or require us to re-design our products or, for any products for which we may obtain approval from the FDA, obtain approval from the FDA to use a new supplier. In addition, if we were to obtain a PMA for Panorama and we subsequently need to modify Panorama because of issues with suppliers described above, the FDA could require us to obtain a PMA supplement prior to making the change, which would require additional time and expense and could impair or delay our commercialization efforts. Transitioning to a new supplier from any of our sole suppliers could be time consuming and expensive, may result in interruptions in our ability to supply our products to the market, could affect the performance specifications of our tests or could require that we re-validate Panorama and our other tests using replacement equipment and supplies, which could delay the performance of our tests and result in increased costs.

Because we rely on third-party manufacturers, we do not control the manufacture of these components, including whether such components will meet quality control requirements. If the supply of components we receive do not meet quality control standards, we may not be able to use the components, or if we use them not knowing that they are of inadequate quality, which has in the past occurred with respect to certain reagents, it may prevent our tests from working properly or at all. Because we cannot ensure the actual production or manufacture of such critical equipment and materials, or the quality of such components, or the ability of our suppliers to comply with applicable legal and regulatory requirements, we may be subject to significant delays caused by interruption in production or manufacturing or to lost revenue from such interruption or from spoiled tests. In addition, any natural or other disaster, acts of war or terrorism, shipping embargoes, labor unrest or political instability or similar events at our third-party manufacturers' facilities that causes a loss of manufacturing capacity would heighten the risks that we face.

We rely on commercial courier delivery services to transport samples to our laboratory facility in a timely and cost-efficient manner and if these delivery services are disrupted, our business will be harmed.

Our business depends on our ability to quickly and reliably deliver test results to our customers. We typically receive blood samples for analysis at our San Carlos, California facility within days of collection from the patient. Disruptions in delivery service, whether due to labor disruptions, bad weather, natural disaster, terrorist acts or threats or

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for other reasons could adversely affect specimen integrity, our ability to process samples in a timely manner and to service our customers, and ultimately our reputation and our business. In addition, if we are unable to continue to obtain expedited delivery services on commercially reasonable terms, our operating results may be adversely affected.

Security breaches, loss of data and other disruptions, including with respect to cybersecurity, could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and reputation.

In the ordinary course of our business, we collect and store sensitive data, including legally-protected health information, such as Panorama results, credit card and other financial information, insurance information, and personally identifiable information. We also store sensitive intellectual property and other proprietary business information, including that of our customers, payers and collaboration partners. We manage and maintain our applications and data utilizing a combination of on-site systems, managed data center systems and cloud-based data center systems. These applications and data encompass a wide variety of business critical information, including research and development information, commercial information and business and financial information. We are highly dependent on information technology networks and systems, including the Internet, to securely process, transmit, and store this critical information. Although we take measures to protect sensitive information from unauthorized access or disclosure, our information technology and infrastructure, and that of our third-party billing and collections provider and other technology partners, may be vulnerable to cyber-attacks by hackers or viruses or breached due to employee error, malfeasance or other disruptions.

Any such breach or interruption could compromise our data security, and the information we store could be inaccessible by us or could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Any such interruption in access, improper access, disclosure, modification, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, such as the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and regulatory penalties. We may be required to comply with state breach notification laws, become subject to mandatory corrective action, or be required to verify the correctness of database contents. Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to perform tests, provide test results, bill payers or patients, process claims and appeals, provide customer assistance services, conduct research and development activities, develop and commercialize tests, collect, process and prepare company financial information, provide information about our tests, educate patients and clinicians about our service, and manage the administrative aspects of our business, any of which could damage our reputation and adversely affect our business. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may compound these adverse consequences. Any such breach could also result in the compromise of our trade secrets and other proprietary information, which could adversely affect our competitive position.

Our cloud-based distribution model adds additional data privacy risk, as certain personal health and other information may be sent to and stored in the cloud by our laboratory licensees. We have contractually obligated our partners to not send personally-identifiable information to our cloud servers, and we have an agreement with the vendor that hosts our software in the cloud to comply with data privacy laws, such as HIPAA. However, we cannot be certain that our partners will comply with these requirements or that our cloud vendor will comply with the terms of our agreement.

In addition, the interpretation and application of health-related, privacy and data protection laws in the United States, Europe, and elsewhere are often uncertain, contradictory and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices. If so, this could result in government-imposed fines or orders requiring that we change our practices, which could adversely affect our business and our reputation. Complying with these laws could cause us to incur substantial costs or require us to change our business practices and compliance procedures in a manner adverse to our business.

The marketing, sale, and use of Panorama and our other products could result in substantial damages arising from product liability or professional liability claims that exceed our resources.

The marketing, sale and use of Panorama and our other products could lead to product liability claims against us if someone were to allege that our test failed to perform as it was designed, or if someone were to misinterpret test results. In addition, we may be subject to liability for errors in, a misunderstanding of, or inappropriate reliance upon, the

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information we provide, or failure to provide such information, as part of the results generated by Panorama and our other products. For example, Panorama could provide a low-risk result which a patient or physician may rely upon to make a conclusion about the health of the fetus, which may, in fact, have the condition because the Panorama result was a so-called false negative. If the resulting baby is born with the condition, the family may file a lawsuit against us claiming product or professional liability. A product liability or professional liability claim could result in substantial damages and be costly and time-consuming for us to defend. Although we maintain product and professional liability insurance, our insurance may not fully protect us from the financial impact of defending against product liability or professional liability claims or any judgments, fines or settlement costs arising out of any such claims. Any product liability or professional liability claim brought against us, with or without merit, could increase our insurance rates or prevent us from securing insurance coverage in the future. Additionally, any product liability or professional liability lawsuit could harm our reputation, result in a cessation of our services or cause our partners to terminate our agreements with them, any of which could adversely impact our results of operations.

If we are unable to successfully scale our operations to support demand for Panorama, our business could suffer.

As our test volumes grow, we will need to continue to ramp up our testing capacity, implement increases in scale and related processing, customer service, billing and systems process improvements and expand our internal quality assurance program and technology platform. We will also need additional equipment, laboratory space and certified laboratory personnel to process higher volumes of our tests. As additional tests are developed, we may need to bring new equipment on-line, implement new systems, technology, controls and procedures, and hire personnel with different qualifications. The value of Panorama and our other products depends, in part, on our ability to perform the tests on a timely basis and at an exceptionally high standard of quality, and on our reputation for such timeliness and quality. Failure to implement necessary procedures, transition to new equipment or processes or to hire the necessary personnel in a timely and effective manner could result in higher processing costs or an inability to meet market demand. We cannot assure you that our efforts to scale our commercial operations will not negatively affect the quality of our test process or results, or that we will be successful in managing the growing complexity of our testing operations.

In addition, our growth may place a significant strain on our management, operating and financial systems and our sales, marketing and administrative resources. As a result of our growth, our operating costs may escalate even faster than planned, and some of our internal systems may need to be enhanced or replaced. If we cannot effectively manage our expanding operations and our costs, we may not be able to grow successfully or we may grow at a slower pace, and our business could be adversely affected.

Our business is susceptible to costs and risks associated with international operations.

As part of our ongoing growth strategy, we intend to continue to expand within and target select international markets to grow our revenues outside the United States. Conducting international operations subjects us to risks, including:

· uncertain or changing laws, regulatory registration and approval processes associated with Panorama and other current and future products;

· uncertain reimbursement by third-party payers;

· competition from companies located in the countries in which we offer our tests, and in which we may be at a competitive disadvantage because the country may favor a local provider or for other reasons;

· longer accounts receivable payment cycles and difficulties in collecting accounts receivable;

· lower margins due to lower pricing in many countries;

· difficulties in managing and staffing international operations and assuring compliance with U.S. and international anti-bribery and other regulations and laws, such as the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA, and the United Kingdom Bribery Act of 2010, or the UKBA;

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· potentially adverse tax consequences, including the complexities of foreign value added tax systems, tax inefficiencies related to our corporate structure and restrictions on the repatriation of earnings;

· increases in financial accounting and reporting burdens and complexities;

· the imposition of trade barriers such as tariffs, quotas, preferential bidding or import or export licensing requirements;

· political, social and economic instability abroad, including terrorist attacks and security concerns;

· fluctuations in currency exchange rates; and

· reduced or varied protection for intellectual property rights.

Additionally, operating internationally requires significant management attention and financial resources. We cannot be certain that the investment and additional resources required to increase international revenues or expand or establish operations in other countries will produce desired levels of revenues or profitability.

Outside the United States we enlist local and regional laboratories and other service providers to assist with blood draw, sales, marketing and customer support. Subject to regulatory clearance, where required, we have begun to contract with international licensees to run the molecular portion of our tests in their own labs and then access our algorithm for analysis of the resulting data through our cloud-based Constellation platform. Locating, qualifying and engaging additional distribution partners and local laboratories with local industry experience and knowledge will be necessary to effectively market and sell our tests outside the United States. We may not be successful in finding, attracting and retaining such distribution partners or laboratories, or we may not be able to enter into such arrangements on favorable terms. Sales practices utilized by our distribution partners that are locally acceptable may not comply with sales practice standards required under United States laws that apply to us, which could create additional compliance risk. Even if we are able to effectively manage our international operations, if our distribution partners and local and regional laboratory licensees are unable to effectively manage their businesses, our business and results of operations could be adversely affected. If our sales and marketing efforts are not successful outside the United States, we may not achieve market acceptance for our tests outside the United States, which would harm our business.

If we lose the services of our founder and Chief Executive Officer or other members of our senior management team, we may not be able to execute our business strategy.

Our success depends in large part upon the continued service of our senior management team. In particular, our founder and Chief Executive Officer, Matthew Rabinowitz, is critical to our vision, strategic direction, culture, products and technology. Although Dr. Rabinowitz spends significant time with us and is highly active in our management, he has the ability to spend up to one business day per week on prior commitments pursuant to his employment agreement. In addition, we do not maintain key-man insurance for Dr. Rabinowitz or any other member of our senior management team. The loss of our founder and Chief Executive Officer or one or more other members of our senior management team could have an adverse effect on our business.

An inability to attract and retain highly skilled employees could adversely affect our business.

To execute our growth plan, we must attract and retain highly qualified personnel. Competition for these personnel is intense, especially for sales, scientific, medical, laboratory and technical personnel and especially in the San Francisco Bay Area where our headquarters and laboratory facilities are located, and the turnover rate can be high. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached their legal obligations to their former employers, resulting in a diversion of our time and resources. In addition, job candidates and existing employees in the San Francisco Bay Area often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity

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awards declines, it may adversely affect our ability to recruit and retain highly skilled employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be adversely affected.

We may engage in acquisitions that could disrupt our business, cause dilution to our stockholders or reduce our financial resources.

In the future, we may enter into transactions to acquire other businesses, products or technologies. Because we have not made any acquisitions to date, our ability to do so successfully is unproven. Even if we identify suitable candidates, we may not be able to make such acquisitions on favorable terms or at all. Any acquisitions we make may not strengthen our competitive position, and these transactions may be viewed negatively by customers or investors. We may decide to incur debt in connection with an acquisition or issue shares of our common stock or other equity securities to the stockholders of the acquired company, which would cause dilution to our existing stockholders. We could incur losses resulting from undiscovered liabilities of the acquired business that are not covered by any indemnification we may obtain from the seller. In addition, we may not be able to successfully integrate the acquired personnel, technologies and operations into our existing business in an effective, timely and non-disruptive manner. Acquisitions may also divert management attention from day-to-day responsibilities, increase our expenses and reduce our cash available for operations and other uses. We cannot predict the number, timing or size of future acquisitions or the effect that any such transactions might have on our operating results.

We may need to raise additional capital, and if we cannot do so when needed or on commercially acceptable terms, we may have to curtail or cease operations.

We may need to raise additional funds through public or private equity or debt financings, corporate collaborations or licensing arrangements to continue to fund or expand our operations.

Our actual liquidity and capital funding requirements will depend on numerous factors, including:

· our ability to achieve broader commercial success with Panorama, Horizon and our other products;

· the success of our research, development, and commercialization efforts for potential new products, including in the field of cancer;

· our ability to obtain more extensive coverage and reimbursement for our tests, including in the average-risk patient population and for microdeletions screening;

· our ability to generate sufficient revenues from our cloud-based distribution model;

· our ability to collect our accounts receivable;

· the costs and success of further expansion of our sales and marketing activities and research and development activities;

· our need to finance capital expenditures and further expand our clinical laboratory operations;

· our ability to manage our operating costs; and

· the timing and results of any regulatory authorizations that we are required to obtain for our tests.

Additional capital, if needed, may not be available on satisfactory terms or at all. Furthermore, any additional capital raised through the sale of equity or equity-linked securities will dilute stockholders' ownership interests in us and may have an adverse effect on the price of our common stock. In addition, the terms of any financing may adversely affect stockholders' holdings or rights. Debt financing, if available, may include restrictive covenants. To the extent that we raise

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capital through collaborations and licensing arrangements, it may be necessary to relinquish some rights to our technologies or grant licenses on terms that may not be favorable to us.

If we are not able to obtain adequate funding when needed, we may have to delay development programs or sales and marketing initiatives. In addition, we may have to work with a partner on one or more of our tests or market development programs, which could lower the economic value of those programs to our company.

Our outstanding debt may impair our financial and operating flexibility.

As of December 31, 2015 and 2014, we had approximately $42.1 million and $26.8 million, respectively, of debt outstanding. Except for operating leases, we do not have any off-balance sheet financing arrangements in place or available.

Our ability to make principal and interest payments on our indebtedness will depend on our ability to generate cash in the future. We may incur additional indebtedness in the future. If we incur additional debt, a greater portion of our cash flows may be needed to satisfy our debt service obligations, and if we do not generate sufficient cash to meet our debt service requirements, we may need to seek additional financing. In that case, it may be more difficult, or we may be unable, to obtain financing on terms that are acceptable to us. As a result, we would be more vulnerable to general adverse economic, industry and capital markets conditions as well as the other risks associated with indebtedness. In addition, our debt agreements have in the past, and may in the future, contain various restrictive covenants and may be secured by some or all of our assets, including our intellectual property. These restrictions could limit our ability to use operating cash flow in other areas of our business because we must use a portion of these funds to make principal and interest payments on our debt.

Ethical, legal and social concerns related to the use of genetic information could reduce demand for our tests.

DNA testing, like that conducted using Panorama, Horizon and our other products and that we expect to conduct in the field of cancer, has raised ethical, legal and social issues regarding privacy and the appropriate uses of the resulting information. Governmental authorities could, for social or other purposes, limit or regulate the use of genomic information or genomic testing or prohibit testing for genetic predisposition to certain conditions, particularly for those that have no known cure. Similarly, these concerns may lead patients to refuse to use genetic tests even if permissible. Ethical and social concerns may also influence U.S. and foreign patent offices and courts with regard to patent protection for technology relevant to our business. These and other ethical, legal and social concerns may limit market acceptance of our tests or reduce the potential markets for services and products enabled by our technology platform, either of which could harm our business.

We could be adversely affected by violations of the FCPA and other worldwide anti-bribery laws.

We are subject to the Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, which prohibits companies and their intermediaries from making payments in violation of law to non-U.S. government officials for the purpose of obtaining or retaining business or securing any other improper advantage. Our reliance on independent laboratories to sell Panorama and other products internationally demands a high degree of vigilance in maintaining our policy against participation in corrupt activity, because these distributors could be deemed to be our agents, and we could be held responsible for their actions. Other U.S. companies in the medical device and pharmaceutical field have faced criminal penalties under the FCPA for allowing their agents to deviate from appropriate practices in doing business with foreign government officials. We are also subject to similar anti-bribery laws in the jurisdictions in which we operate, including the United Kingdom's Bribery Act of 2010, which went into effect in 2011, which also prohibits commercial bribery and makes it a crime for companies to fail to prevent bribery. These laws are complex and far-reaching in nature, and, as a result, we cannot assure you that we would not be required in the future to alter one or more of our practices to be in compliance with these laws or any changes in these laws or the interpretation thereof. Any violations of these laws, or allegations of such violations, could disrupt our operations, involve significant management distraction, involve significant costs and expenses, including legal fees, and could result in a material adverse effect on our business, prospects, financial condition, or results of operations. We could also suffer severe penalties, including criminal and civil penalties, disgorgement, and other remedial measures.

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Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an "ownership change" (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation's ability to use its pre-change net operating loss, or NOL, carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. As a result of our most recent private placements of equity securities and other transactions that have occurred over the past three years, or upon our recent initial public offering, we may have experienced an "ownership change." We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership (some of which may not be in our control). As of December 31, 2015, we had federal and state NOL carryforwards of approximately $114.5 million and $73.2 million, respectively, which begin to expire in 2027 and 2017, respectively, if not utilized. We also had federal research and development credit carryforwards of approximately $4.6 million, which begin to expire in 2027, and state research and development credit carryforwards of approximately $3.4 million, which can be carried forward indefinitely. Our ability to use these carryforwards could be limited if we experience "ownership changes."

Reimbursement and Regulatory Risks Related to Our Business

If we are unable to expand or maintain third-party payer coverage and reimbursement for Panorama and our other tests, or if we are required to refund any reimbursements already received, our revenues and results of operations would be adversely affected.

Our business depends on our ability to obtain or maintain adequate reimbursement coverage from third-party payers and patients. Third-party reimbursement for our testing represents a significant portion of our revenues, and we expect third-party payers such as insurance companies and government healthcare programs to be our most significant source of payments going forward. In particular, we believe that expanding insurance coverage from the high-risk to the average-risk pregnancy population, which represents roughly 80% of the United States pregnancy market, and for microdeletions screening,and obtaining positive coverage decisions and favorable reimbursement rates from commercial third-party payers and the Centers for Medicare & Medicaid Services, or CMS, and state reimbursement programs for Panorama, will be necessary to continue to achieve commercial success. If we are unable to obtain or maintain adequate reimbursement coverage from, or achieve in-network status with, third-party payers for our existing tests or future tests, our ability to generate revenues would be limited. For example, physicians may be reluctant to order our tests due to the potential of a substantial cost to the patient if reimbursement coverage is unavailable or insufficient.

In making coverage determinations, third-party payers often rely on practice guidelines issued by professional societies. The International Society for Prenatal Diagnosis, or ISPD, has issued guidelines and the American College of Medical Genetics, or ACMG, has issued a statement that are supportive of NIPT in average-risk pregnancies, as well as high-risk pregnancies. However, the American College of Obstetricians and Gynecologists, or ACOG, and the Society for Maternal Fetal Medicine, or SMFM, has issued guidelines for NIPT stating that, while all pregnant women should be informed of the option to receive NIPT, conventional screening methods, rather than NIPT, remain the most appropriate choice for first-line screening for average-risk pregnancies. While we expect that, based on the ACOG and SMFM guidelines, more average-risk women will be informed of NIPT and may request it, it is uncertain whether third-party payers will reimburse for NIPT for these average-risk patients. Currently, most third-party payers have negative coverage determinations for average-risk patient populations, meaning that their policy is not to reimburse for NIPT for patients in the average-risk population. The ACOG and SMFM guidelines also echoed a previous statement from SMFM that routine screening for microdeletions should not be performed. Some third-party payers do not reimburse for microdeletions screening. While we recently published data on the performance of Panorama for the 22q11.2 deletion syndrome, ACOG and SMFM's advising against screening for microdeletions may continue to have a negative impact on third-party payers' reimbursement for Panorama for microdeletions, at least until additional validation data on the sensitivity and specificity of our tests becomes available. If third-party payers do not reimburse for NIPT for average-risk pregnancies or microdeletions in the future, our future revenues and results of operations would be adversely affected.

The reimbursement environment, particularly for molecular diagnostics, is changing and our efforts to broaden reimbursement for our tests with third-party payers may not be successful. Third-party payers from whom we have

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received reimbursement may withdraw coverage or decrease the amount of reimbursement coverage for our tests at any time and for any reason. In some cases, our tests or their uses with certain populations may be considered experimental by third-party payers and, as a result, such payers may decide not to reimburse for such tests. In addition, third-party payers may decide to bundle payment for multiple tests, such as carrier screen tests or our Panorama test and the separate Panorama screen for microdeletions, into a single payment rate. Third-party payers may also decide to deny payment or recoup payment for testing that they determine to have been not medically necessary or otherwise against their coverage determinations, and we may be required to refund reimbursements already received. We have dealt with these types of requests for recoupment from third-party payers from time to time in the ordinary course of our business, and it is possible that we will continue to do so in the future.

Furthermore, some of our contracts with third-party payers contain most favored nations provisions, pursuant to which we have agreed that we will not bill the third-party payer more than we bill any other third-party payer. We must therefore monitor and manage our compliance with our contractual requirements with third-party payers, and if we are unable to do so, our revenues could be adversely affected by claims for refunds. These claims could also require the time and attention of our management, and may be a distraction from development of our business.

In addition, if a third-party payer denies coverage, it may be difficult for us to collect from the patient, and we may not be successful in doing so. Further, we are often unable to collect the full amount of a patient’s responsibility where we are an out-of-network provider and the patient is left with a large balance, despite our good faith efforts to collect. As a result, we cannot always collect the full amount due for our tests when third-party payers deny coverage, cover only a portion of the invoiced amount or the patient has a large deductible, which may raise questions regarding our billing policies and collection practices. We believe that our billing policies and our collection practices are compliant with applicable laws and our obligations to these payers. However, we have in the past received, and we may in the future receive, inquiries from third-party payers regarding our billing policies and collection practices, and we have addressed these inquiries as and when they have arisen. There is no guarantee that we will always be successful in addressing such concerns, possibly resulting in a third-party payer deciding to reimburse for our tests at a lower amount or not at all, may seek repayment of amounts previously paid to us, or may bring legal action seeking reimbursement of previous amounts paid, any of which could cause reimbursement revenue for our testing to decline. Furthermore, if a third-party payer were to be successful in proving such reimbursement was in breach of contract or otherwise contrary to law, we could be required to make a repayment, which could be significant, and we might be required to restate our financials from a prior period, which would likely cause our stock price to decline.

We are aware of policies and practices of our competitors, including privately-held and publicly-traded companies, to offer patients a set cap on their out-of-pocket responsibility, waive patient responsibility altogether, and, in some cases, to not send patients a bill at all, all of which we believe is not in accordance with third-party payers' policies and, in some cases, not compliant with the law. In contrast, it is our policy not to offer such caps or waivers and to send bills to patients for services rendered. Because of this discrepancy, our offerings may be perceived as less attractive to patients and their healthcare providers, who are concerned about patients having a large financial responsibility for these products. As a result, we believe that our revenues and results of operations have been adversely affected, and may continue to be so affected to the extent such competitors continue such practices.

Our revenues may be adversely affected if we are unable to successfully obtain reimbursement from the Medicare Program.

Our revenues from Medicare are currently very small, given the population that Medicare covers, and we do not expect those revenues to increase materially with regard to NIPT. However, Medicare reimbursement can affect Medicaid reimbursement. For example, fee-for-service Medicaid programs generally do not reimburse at rates that exceed Medicare's fee-for-service rates and many commercial third-party payers look to the amounts that Medicare pays for testing services and set their payment rates at a percentage of those amounts. Reimbursement amounts for laboratory tests furnished to Medicare beneficiaries are typically based on the Clinical Laboratory Fee Schedule, or CLFS, set by CMS pursuant to a statutory formula established by the U.S. Congress. Our current Medicare Part B reimbursement was not set pursuant to a national coverage determination by CMS. Although we believe that coverage is available under Medicare Part B even without such a determination, we currently lack the national coverage certainty afforded by a formal coverage

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determination by CMS. Thus, CMS could issue an adverse coverage determination as to Panorama which could influence other third-party payers, including Medicaid, which could have an adverse effect on our revenues.

Our revenues may be adversely affected if we are unable to successfully obtain reimbursement from state Medicaid programs.

Approximately 40% of all births in the United States are to state Medicaid program recipients. Under Medicaid regulations, in order for us to be reimbursed by a state’s Medicaid program, we must be recognized as a Medicaid provider by the state in which the Medicaid recipient receiving the services resides. As of December 31, 2015, we are recognized by 37 states as a Medicaid provider. We may not be able to be recognized as a provider by many more Medicaid programs, because some states require that a provider maintain a laboratory in that state in order to be recognized. In addition, we may face challenges in obtaining reimbursement even when we are recognized as a Medicaid provider. If Medicare’s CLFS rate for our services and tests are low, the Medicaid reimbursement amounts will also likely be as low, or lower, than the Medicare reimbursement rate. In some cases, the state Medicaid program’s reimbursement rate for our testing might be zero dollars. In addition, each state’s Medicaid program has its own coverage determinations related to our testing, and some state Medicaid programs may not provide their recipients with coverage for our testing. Low Medicaid reimbursement rates for our tests could have an adverse effect on our business and revenues.

Many Medicaid programs have entered into agreements with managed care plans to have the managed care plans manage the provision of healthcare to that Medicaid program’s beneficiaries. We cannot enter into contracts to provide our testing services to any beneficiaries who are enrolled with a Medicaid managed care plan in those states where we are not recognized as a Medicaid provider. Further, we might not be able to obtain contracts with Medicaid managed care plans in those states where we are recognized as a Medicaid provider because those managed care plans may have closed provider panels and not allow us to participate in their plan. Thus, not being able to participate in one or more managed Medicaid plans in a given state could have an adverse effect on our revenues.

Our revenues may be adversely impacted if third-party payers withdraw coverage or provide lower levels of reimbursement due to changing policies, billing complexities or other factors.

Some third-party payers from whom we have received reimbursement to date have not entered into agreements with us to govern approval or payment terms. Therefore, such third-party payers could withdraw such coverage and reimbursement for our tests in the future, at any time and for any reason. Managing reimbursement on a case-by-case basis is time consuming and contributes to an increase in the number of days it takes us to collect on accounts, and increases our risk of non-payment. Negotiating reimbursement on a case-by-case basis also typically results in the receipt of reimbursement at a significant discount to the list price of our tests.

Further, even if we are under contract with a third-party payer, the contract does not guarantee reimbursement for all testing we perform. For example, third-party payers with whom we have written agreements typically have policies that state they will not reimburse for use of NIPTs in the average-risk pregnancy population or for the screening of microdeletions. In addition, the terms of certain of our agreements may require us to seek pre-approval from the third-party payer or put in place other controls and procedures prior to conducting a test.To the extent we do not follow these requirements, we may not receive some or all of the reimbursement payments to which we would otherwise be entitled.

Even if we are being reimbursed for our tests, third-party payers may review and adjust the rate of reimbursement, require co-payments from patients or stop paying for our tests. Government healthcare programs and other third-party payers continue to increase their efforts to control the cost, utilization and delivery of healthcare services by demanding price discounts or rebates and limiting coverage of, and amounts they will pay for, molecular diagnostic tests. These measures have resulted in reduced payment rates and decreased utilization for the clinical laboratory industry. Because of these cost-containment trends, governmental and commercial third-party payers that currently provide reimbursement for, or may in the future cover, our tests may reduce, suspend, revoke or discontinue payments or coverage at any time. Reduced reimbursement of our tests may harm our business, financial condition or results of operations.

Billing for clinical laboratory testing services is complex. We perform tests in advance of payment and without certainty as to the outcome of the billing process. In cases where we expect to receive a fixed fee per test due to our

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reimbursement arrangements, we may nevertheless encounter disputes over pricing and billing. Each third-party payer typically has different billing requirements, and the billing requirements of many payers have become increasingly difficult to meet.

Among the factors complicating our billing of third-party payers are:

· disparity in coverage among various payers;

· disparity in information and billing requirements among payers; and

· incorrect or missing billing information, which is required to be provided by the prescribing health care practitioner.

These risks related to billing complexities, and the associated uncertainty in obtaining payment for our tests, could harm our business, financial condition and results of operations.

In the United States, the American Medical Association, or AMA, generally assigns specific billing codes for laboratory tests under a coding system known as Current Procedure Terminology, or CPT, which we and our customers must use to bill and receive reimbursement for our diagnostic tests. Once the CPT code is established, CMS establishes payment levels and coverage rules under Medicare while private payers establish rates and coverage rules independently. A new CPT code specific to NIPT for aneuploidies came into effect in January 2015. Additionally, CMS adopted a new code set for diagnosis, commonly known as ICD-10, in October 2015. The AMA has recently issued a CPT code for microdeletions, which is scheduled to go into effect in January 2017; however, we cannot guarantee that we will be able to negotiate favorable rates for this code.We do not currently have specific CPT codes assigned for all of our tests, and there is a risk that we may not be able to obtain such codes, or if obtained, we may not be able to negotiate favorable rates for such codes. We currently submit for reimbursement using CPT codes that, based on the guidance of outside legal and coding experts, are determined to be the most appropriate for our testing, but there is a risk that these codes may be rejected or withdrawn or that third-party payers will seek refunds of amounts that they claim were inappropriately billed based on either the CPT code used, or the number of units billed. We accordingly cannot guarantee that our current or any future tests will have a CPT code assigned. In addition, there can be no guarantees that governmental and commercial third-party payers will establish positive or adequate coverage policies for our tests or reimbursement rates for any CPT code we may use.

If the FDA were to begin actively regulating our tests as outlined in the FDA's October 3, 2014 draft guidances, we could incur substantial costs and delays associated with trying to obtain premarket clearance or approval and incur costs associated with complying with post-market controls.

We currently offer a number of prenatal genetic tests, including Panorama, and each of those tests is an LDT. In addition, we currently anticipate initially commercializing our planned cancer tests as LDTs. An LDT is generally considered to be a test that is designed, developed, validated and used within a single laboratory. The FDA takes the position that it has the authority to regulate such tests as medical devices under the Federal Food, Drug, and Cosmetic Act, or FDC Act, but it has generally exercised enforcement discretion with regard to LDTs. This means that even though the FDA believes it can impose regulatory requirements on LDTs, such as requirements to obtain premarket approval or clearance of LDTs, it has generally chosen not to enforce those requirements to date.

On October 3, 2014, the FDA issued draft guidances outlining its plan to actively regulate LDTs using a risk-based approach. The comment period for the draft guidances has closed; the draft guidances have not yet been finalized. According to the draft guidances, the FDA intends to fully regulate, in a phased-in manner, LDTs that it considers moderate-risk or high-risk, beginning with those within the high-risk category it considers "highest-risk devices." With regard to premarket review, under the proposed guidances, the highest-risk LDTs will be the subject of premarket submissions 12 months after the guidances are finalized. Premarket submission requirements will be phased in over the following four years for the remaining high-risk LDTs. Then, beginning after year five, moderate-risk LDTs will be required to be the subject of premarket submissions.

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Based on our current understanding of the draft guidances, our current tests, including Panorama, would be treated as moderate-risk or high-risk. We do not expect that our current tests will be among the highest-risk devices. The FDA has indicated that high- and moderate-risk LDTs that are on the market if and when the draft guidances are finalized will remain on the market while the FDA reviews the submissions. We do not expect that we will be required to remove any of our current products from the market based on any final guidance if we comply with the requirements outlined in such final guidance.

The FDA's proposed framework in the draft guidances outlines post-market controls, including registration and listing or FDA notification, corrections and removals reporting and adverse event reporting, that would be required of all LDTs except those for forensic (law enforcement) use and certain LDTs for transplantation. For moderate- or high-risk tests, it also would require compliance with the QSR at the time the FDA clears a 510(k) for a test or the laboratory submits a PMA for a test. We would need to comply with these controls, which will be costly and time-consuming, and if we fail to comply we could be subject to enforcement action.

The regulation by the FDA of LDTs remains uncertain. The draft guidances have been the subject of considerable controversy, and it is unclear whether or when the FDA will finalize the guidances, or whether any final guidances would be substantially revised from the draft versions. In addition, Congress may act to provide further direction to the FDA on the regulation of LDTs.

In the meantime, the FDA could require us to seek clearance or approval to offer our tests for clinical use even before it finalizes any future guidance. If FDA premarket review or approval is required, or if we decide to voluntarily pursue FDA review or approval, for any of our existing or future tests, we may be forced to stop selling our tests or we may be required to modify claims or make other changes to our tests while we work to obtain FDA clearance or approval. Our business would be adversely affected while such review is ongoing and if we are ultimately unable to obtain premarket clearance or approval. For example, the regulatory 510(k) clearance or PMA process may involve, among other things, successfully completing analytical, pre-clinical and/or clinical studies beyond the studies we have already performed for each of our products and would involve submitting a premarket notification or filing a PMA application with the FDA. Performance achieved in published studies may not be repeated in later studies that would be required to obtain either FDA premarket clearance or approval. Limited results from earlier-stage verification studies, beyond the validation and other studies we have already performed for each of our products, may not accurately predict results from studies of larger numbers of subjects drawn from more diverse populations over a longer period of time. Unfavorable results from ongoing preclinical and clinical studies could result in delays, modifications or abandonment of ongoing or future clinical studies, or abandonment of a product development program or may delay, limit or prevent regulatory approvals or commercialization. In addition, we may require cooperation in our filings for FDA approval from third-party manufacturers of the components of our tests. If we are unable to obtain such required cooperation, we may be unable to achieve desired regulatory clearances or approvals. Furthermore, if FDA premarket review or approval is required, our cash flows may be adversely affected, as most third party payers, including Medicaid, will not reimburse for use of medical devices which are required to be cleared or approved but which have not been.

We have informed the FDA of our intent to actively pursue a PMA for Panorama. We cannot assure you that Panorama or any of our other tests for which we pursue or are required to obtain premarket review by the FDA will be cleared or approved on a timely basis, if at all. In addition, if a test has been approved through a PMA, certain changes that we may make to improve the test may need to be approved by the FDA before we can implement them, which could increase the time to roll such changes out to the commercial market. Ongoing compliance with FDA regulations would increase the cost of conducting our business and subject us to heightened regulation by the FDA and penalties for failure to comply with these requirements, any of which may adversely impact our business and results of operations.

Furthermore, the FDA or the Federal Trade Commission may object to the materials and methods we use to promote the use of our current prenatal tests or other LDTs we may develop in the future, and may initiate enforcement actions against us. Enforcement actions by the FDA may include, among others, untitled or warning letters; fines; injunctions; civil or criminal penalties; recall or seizure of current or future tests, products or services; operating restrictions and partial suspension or total shutdown of production.

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Changes in laws and regulations, or in their application, may adversely affect our business, financial condition and results of operations.  

The clinical laboratory testing industry is highly regulated, and failure to comply with applicable regulatory, supervisory or licensing requirements may adversely affect our business, financial condition and results of operations. In particular, the laws and regulations governing the marketing and research of clinical diagnostic testing are extremely complex and in many instances there are no clear regulatory or judicial interpretations of these laws and regulations, which increases the risk that we may be found to be in violation of these laws.

Furthermore, the molecular diagnostics industry as a whole is a growing industry and regulatory agencies such as Health and Human Services, or HHS, or the FDA may apply heightened scrutiny to new developments in the field. While we have taken steps to ensure compliance with the current regulatory regime in all material respects, given its nature and our geographical diversity, there could be areas where we are non-compliant. Any change in the laws or regulations relating to our business may require us to implement changes to our business or practices, and we may not be able to do so in a timely or cost-effective manner. Should we be found to be non-compliant with regulatory requirements, we may be subject to sanctions which could include required changes to our operations, adverse publicity, substantial financial penalties and criminal proceedings, which may adversely affect our business, financial condition and results of operations by increasing our cost of compliance or limiting our ability to develop, market and commercialize our tests.

In addition, there has been a recent trend of increased U.S. federal and state regulation of payments made to physicians, which are governed by laws and regulations including the Stark law. Among other requirements, the Stark law requires laboratories to track, and places a cap on, non-monetary compensation provided to referring physicians.

While we have a compliance plan to address compliance with government laws and regulations, including applicable fraud and abuse laws and regulations, the evolving commercial compliance environment and the need to build and maintain robust and scalable systems to comply with regulations in multiple jurisdictions with different compliance and reporting requirements increases the possibility that we could inadvertently violate one or more of these requirements.

Our business could be adversely impacted by CMS' adoption of the new code set for diagnoses.

CMS has adopted a new code set for diagnosis, commonly known as ICD-10, which significantly expands the code set for diagnoses. As required, we implemented the new code set on October 1, 2015. Our failure or the failure of third-party payers or health care practitioners to properly transition to the use of ICD-10 codes within the required timeframe could have an adverse impact on reimbursement, days sales outstanding and cash collections. In addition, health care practitioners may fail to provide appropriate codes for ordered tests leading to delays in billing, which could result in increased costs and decreased collection of payment. As a result, we could face increased costs and complexity, a temporary disruption in receipts and ongoing reductions in reimbursements and net revenues.

If we fail to comply with federal, state and foreign laboratory licensing requirements, we could lose the ability to perform our tests or experience disruptions to our business.

We are subject to CLIA, a federal law that regulates clinical laboratories that perform testing on specimens derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease. CLIA regulations require clinical laboratories to obtain a certificate and mandate specific standards in the areas of personnel qualifications, administration, and participation in proficiency testing, patient test management and quality assurance. CLIA certification is also required in order for us to be eligible to bill state and federal healthcare programs, as well as many private third-party payers, for our tests. To renew these certifications, we are subject to survey and inspection every two years. Moreover, CLIA inspectors may make random inspections of our clinical laboratory.

We are also required to maintain certain state licenses to conduct testing in our laboratories. California law establishes standards for the day-to-day operation of our clinical laboratory in San Carlos, California, including the training and skills required of personnel and quality control matters. We maintain a license in good standing with the California Department of Health Services, or DHS. In addition, we have obtained a license for our San Carlos laboratory from the New York Department of Health, or DOH, which mandates proficiency testing regardless of whether such laboratories are

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located in New York. If we are found to be out of compliance with either California or New York requirements, DHS or DOH may, among others, suspend, restrict or revoke our license for that state, assess substantial civil monetary penalties, or impose specific corrective action plans. Any such actions could materially and adversely affect our business.

Moreover, some states require that we hold licenses to test samples from patients in those states. We have obtained licenses from states that we believe require us to do so, and we intend to comply with similar requirements that we may become aware of for any other states. However, we cannot assure you that the regulators in each of the states that regulate our laboratory in San Carlos, California will at all times find us to be in compliance with the applicable laws of their respective state, which may result in suspension, limitation, revocation or annulment of our laboratory’s license for that state, censure, or civil monetary penalties, and would result in our inability to test samples from patients in that state.

CMS also has the authority to impose a wide range of sanctions, including revocation of a laboratory’s CLIA certification along with a bar on the ownership or operation of any CLIA-certified laboratory by any owners or operators of the deficient laboratory.

If we were to lose our CLIA certification or any required state license, or if any sanction were imposed upon us under CLIA, its implementing regulations, or state or foreign laws or regulations governing licensure, or any failure by us to renew a CLIA certificate, a state license or accreditation, we would not be able to operate our clinical laboratory and offer our testing services, in some or all states or countries, which would materially and adversely impact our business and results of operations.

Changes in government healthcare policy could increase our costs and negatively impact coverage and reimbursement for our tests by governmental and other third-party payers.

The U.S. government has shown significant interest in pursuing healthcare reform and reducing healthcare costs. Government healthcare policy has been and, we expect, will continue to be a topic of extensive legislative and executive activity in the U.S. federal and many U.S. state governments. As a result, our business could be affected by significant and potentially unanticipated changes in government healthcare policy, such as changes in reimbursement levels by public third-party payers. Any of these or other changes could substantially impact our revenues, increase costs and divert management attention from our business strategy. Going forward, we cannot predict the full impact of governmental healthcare policy changes on our business, financial condition and results of operations.

In the United States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the PPACA, was signed into law in March 2010 and significantly impacts the U.S. pharmaceutical and medical device industries, including the diagnostics sector, in a number of ways. Members of Congress have proposed a number of legislative initiatives with respect to the PPACA, including possible repeal of the PPACA; and although the Supreme Court has upheld the constitutionality of certain provisions of the PPACA that have been challenged, at this time it remains unclear whether there will be any changes made to certain provisions or the entirety of PPACA.

Currently, under the PPACA, each medical device manufacturer that sells medical devices that are listed with the FDA is required to pay a sales tax in an amount equal to 2.3% of the price at which it sells such medical devices. None of our tests are currently listed with the FDA. FDA officials have indicated that a laboratory will not have to pay the sales tax until it lists the test with the FDA. In the FDA's draft guidances on LDTs, listing of an LDT, such as our tests, occurs at the time a laboratory submits either a PMA or 510(k) for the test. If the guidances are finalized as currently drafted, the application of this tax to our clinical LDTs could harm our business, financial condition, results of operations. The tax has from time to time been subject to legislative and executive discussion regarding potential repeal.

The PPACA also created a new system of health insurance "exchanges," designed to make health insurance policies available to individuals and certain groups through state- or federally-administered marketplaces in addition to existing channels for obtaining health insurance coverage. In connection with such exchanges, certain "essential health benefits" are intended to be made more consistent across plans, setting a baseline coverage level. The states (and the federal government) have some discretion in determining the definition of "essential health benefits" and we cannot predict at this time whether Panorama or our other tests will fall into a benefit category deemed "essential" for coverage purposes across

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the plans offered in any or all of the exchanges. If Panorama or any of our other tests are not covered by plans offered in the health insurance exchanges, our business, financial condition and results of operations could be adversely affected.

The PPACA also includes significant new fraud and abuse measures, including required disclosures of financial arrangements with physician customers, lower thresholds for violations and increasing potential penalties for such violations. We believe we are in compliance with provisions of the PPACA that are applicable to us, and are monitoring the trends and changes resulting from the legislation that may impact our business over time, but cannot assure you that our business will not be adversely impacted by any such trends and changes.

In addition to the PPACA, various healthcare reform proposals have also emerged from federal and state governments. The Protecting Access to Medicare Act of 2014, or PAMA, introduces a multi-year pricing program for services paid under the CLFS that is designed to bring Medicare allowable amounts in line with the amounts paid by private payers. CMS, which is responsible for implementing PAMA, has issued a proposed rule for implementation of PAMA. Under the proposed rule, certain laboratories would be required to report third-party payer rates and test volumes. For newly developed advanced diagnostic tests for which there is no CLFS payment amount, the Medicare payment rate for the first full three calendar quarters following the quarter that the tests are offered would be the actual list price offered to third-party payers. Thereafter, CMS would use the data reported by laboratories during this period to establish payment rates for such newly developed advanced diagnostic tests. The comment period for this proposed rule has closed, but CMS has not yet released a final rule. In addition, federal budgetary limitations and changes in healthcare policy, such as the creation of broad limits for our tests or requirements that beneficiaries of government health plans pay for, or pay for higher, portions of clinical laboratory tests or services received, could substantially diminish the sale, or inhibit the utilization, of our tests in the future, increase costs and adversely affect our ability to generate revenues and achieve profitability.

We cannot predict whether future healthcare initiatives will be implemented at the federal or state level or how any such future legislation, regulation or initiative may affect us. The taxes imposed by the new federal legislation and the expansion of government's role in the U.S. healthcare industry, as well as changes to the reimbursement amounts paid by payers for our current and future tests, may adversely affect the volumes of services and tests that we provide and may therefore adversely affect our business, financial condition, results of operations, and cash flows.

If we or our laboratory partners, consultants or commercial partners act in a manner that violates healthcare fraud and abuse laws or otherwise engage in misconduct, we may be subject to civil or criminal penalties.

We are subject to healthcare fraud and abuse regulation and enforcement by both the U.S. federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

· HIPAA, which created federal civil and criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and also imposes obligations with respect to maintenance of the privacy and security, and transmission, of individually identifiable health information;

· federal and state laws and regulations governing informed consents for genetic testing and the use of genetic material;

· state laws and regulations governing the submission of claims, as well as billing and collection practices, for healthcare services;

· the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as Medicare;

· the federal False Claims Act which prohibits, among other things, the presentation of false or fraudulent claims for payment from Medicare, Medicaid, or other government-funded third-party payers ;

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· state law equivalents of each of the above U.S. federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers;

· federal laws and regulations governing the Medicare program, providers of services covered by the Medicare program, and the submission of claims to the Medicare program, as well as the Medicare Manuals issued by CMS and the local medical policies promulgated by the Medicare Administrative Contractors with respect to the implementation and interpretation of such laws and regulations;

· the federal Stark physician self-referral law, which prohibits a physician from making a referral for certain designated health services covered by the Medicare program (and according to case law in some jurisdictions, the Medicaid program as well), including laboratory and pathology services, if the physician or an immediate family member has a financial relationship with the entity providing the designated health services, unless the financial relationship falls within an applicable exception to the prohibition, as well as state law equivalents of the Stark law;

· the federal Civil Monetary Penalties Law, which prohibits, among other things, the offer or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary's selection of a particular provider, practitioner or supplier of services reimbursable by Medicare or a state healthcare program, unless an exception applies; and

· the prohibition on reassignment by the program beneficiary of Medicare claims to any party.

Furthermore, a development affecting our industry is the increased enforcement of the federal False Claims Act and, in particular, actions brought pursuant to the False Claims Act's "whistleblower" or "qui tam" provisions. The False Claims Act imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal governmental payer program. The qui tam provisions of the False Claims Act allow a private individual to bring civil actions on behalf of the federal government for violations of the False Claims Act and permit such individuals to share in any amounts paid by the defendant to the government in fines or settlement. When an entity is determined to have violated the False Claims Act, it is subject to mandatory damages of three times the actual damages sustained by the government, plus mandatory civil penalties ranging from $5,500 to $11,000 for each false claim. In addition, various states have enacted false claim laws analogous to the federal False Claims Act, and in some cases go even further because many of these state laws apply where a claim is submitted to any third-party payer and not merely a governmental payer program.

Many of these laws and regulations have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. We have adopted policies and procedures designed to comply with these laws, and in the ordinary course of our business, we conduct internal reviews of our compliance with these laws. However, the rapid growth and expansion of our business both within and outside of the United States may increase the potential for violating these laws or our internal policies and procedures, and the uncertainty around the interpretation of these laws and regulations increases the risk that we may be found in violation of these or other laws and regulations. If our operations, including the conduct of our employees, distributors, consultants and commercial partners, are found to be in violation of any laws or regulations that apply to us, we may be subject to penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement of profits, exclusion from participation in government programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, private qui tam actions brought by individual whistleblowers in the name of the government, as described below, contractual damages, reputational harm, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could materially and adversely affect our business, financial condition and results of operations.

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Failure to comply with privacy and security laws and regulations could result in fines, penalties and damage to our reputation and have a material adverse effect on our business.

The federal HIPAA privacy and security regulations, including the expanded requirements under the Health Information Technology for Economic and Clinical Health Act, or HITECH, which was enacted as part of the American Recovery and Reinvestment Act of 2009, establish comprehensive federal standards with respect to the use and disclosure of protected health information by health plans, health care providers, and health care clearinghouses, in addition to setting standards to protect the confidentiality, integrity and security of protected health information. The regulations establish a complex regulatory framework on a variety of subjects, including:

· the circumstances under which the use and disclosure of protected health information are permitted or required without a specific authorization by the patient, including but not limited to treatment purposes, activities to obtain payments for our services, and its health care operations activities;

· a patient’s right to access, amend and receive an accounting of certain disclosures of protected health information;

· the content of notices of privacy practices for protected health information;

· administrative, technical and physical safeguards required of entities that use or receive protected health information; and

· the protection of computing systems that maintain protected health information.

We have implemented policies and procedures related to compliance with the HIPAA privacy and security regulations as required by law. The privacy and security regulations establish minimum requirements, and do not supersede state laws that are more stringent. Therefore, we are required to comply with both federal privacy and security regulations and various state privacy and security laws and regulations. The federal privacy regulations restrict our ability to use or disclose patient identifiable laboratory data, without patient authorization, for purposes other than payment, treatment or health care operations (as defined by HIPAA), except for disclosures for various public policy purposes and other specified permitted purposes. HIPAA, as amended by HITECH, provides for significant fines and other penalties for wrongful use or disclosure of protected health information in violation of privacy and security regulations, including potential civil and criminal fines and penalties. We could also incur damages under state laws pursuant to an action brought by a private party for the wrongful use or disclosure of confidential health information or other private personal information. In addition, other federal and state laws that protect the privacy and security of patient information may be subject to enforcement and interpretation by various governmental authorities and courts, resulting in complex compliance issues.

In addition, laws and regulations of the European Union, as well as other countries, protect the use and disclosure of personal information. As we continue to expand and grow our business, compliance with these laws and regulations may result in increased costs, and failure to comply may result in significant fines, penalties and damage to our reputation.

Changes in the way the FDA regulates the reagents, other consumables, and testing equipment we use when developing, validating, and performing our tests could result in delay or additional expense in bringing our tests to market or performing such tests for our customers.

Many of the sequencers, reagents, kits and other consumable products used to perform our prenatal testing, as well as the instruments and other capital equipment that enable the testing, are offered for sale as analyte specific reagents, or ASRs, or for research use only, or RUO. ASRs consist of single reagents or primer pairs, which are intended for use in a diagnostic application for the identification and quantification of an individual chemical substance in biological specimens. As medical devices, ASRs must comply with the QSR provisions and other device requirements, but most are exempt from the 510(k) and PMA premarket review processes. Products that are intended for research use only and are labeled as RUO are exempt from compliance with the FDA requirements, including the approval or clearance and other product quality requirements for medical devices. A product labeled RUO but intended for clinical diagnostic use may be viewed by the FDA as adulterated and misbranded under the FDC Act and subject to FDA enforcement action. The FDA

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has said it will consider the totality of the circumstances surrounding distribution and use of an RUO product, including how the product is marketed and to whom, when determining its intended use. The FDA could disagree with a supplier's assessment that the supplier’s products are ASRs, or when labeled as RUO are actually intended for clinical diagnostic use, and could take enforcement action against the supplier, including requiring the supplier to seek clearance or approval for the products. The supplier may cease selling the products, and we may be unable to obtain an acceptable substitute on commercially reasonable terms or at all, which could significantly and adversely affect our ability to provide timely testing results to our customers or could significantly increase our costs of conducting business.

The sequencers and reagents supplied to us by Illumina and the blood collection tubes supplied to us by Streck are labeled as RUO in the United States. If the FDA were to require clearance or approval for the sale of Illumina's sequencers and if Illumina does not obtain such clearance or approval, we would have to find an alternative sequencing platform for Panorama. We currently have not validated an alternative sequencing platform that would work for Panorama in a commercially viable manner. If we were not successful in selecting, acquiring on commercially reasonable terms and implementing an alternative platform on a timely basis, our business, financial condition and results of operations could be adversely affected. Similarly, a decision by the FDA to require clearance or approval for the sale by Streck of the blood collection tubes used for Panorama, or a finding that any of our suppliers failed to comply with applicable requirements, could result in interruptions in our ability to supply our products to the market and adversely affect our operations. Furthermore, if and to the extent that we begin to supply products that are RUO, we would also be subject to the regulatory risks described above.

Our financial condition and results of operations may be adversely affected by international government regulatory and business risks.

As we expand our international operations and offer our tests in other countries, we will be increasingly subject to varied and complex foreign and international laws and regulations. Compliance with these laws and regulations often involves significant costs and may require changes in our business practices that may result in reduced revenues and profitability. For example, our tests may be subject to the regulatory approval requirements for each foreign country in which they are sold by us or a laboratory partner or licensee, and our future performance would depend on us or our partners or licensees obtaining any necessary regulatory approvals in a timely manner. Regulatory approval can be a lengthy, expensive and uncertain process. In addition, regulatory processes are subject to change, and new or changed regulations can result in unanticipated delays and cost increases. We may not be able to obtain foreign regulatory approvals on a timely basis, if at all, which may cause us to incur additional costs or prevent us from marketing our tests in foreign countries.

We are also subject to the FCPA and the U.K. Bribery Act which, among other restrictions, prohibits U.S. companies and their intermediaries from making payments to foreign officials for the purpose of obtaining or retaining business or otherwise obtaining favorable treatment, as well as anti-bribery and anti-corruption laws of other jurisdictions. Please see the risk factor entitled “We could be adversely affected by violations of the FCPA and other worldwide anti-bribery laws.” In addition, our international activities are subject to U.S. economic and trade sanctions, which restrict or otherwise limit our ability to do business in certain designated countries. Other limitations, such as prohibitions on the import into the United States of tissue necessary for us to perform our tests or restrictions on the export of tissue or genetic data imposed by countries outside of the United States, or restrictions on importation and circulation of blood collection tubes or other equipment or supplies by countries outside the United States, may limit our ability to offer our tests internationally in the future.

Our training and compliance program and our other internal control policies and procedures may not always protect us from acts committed by our employees or agents. Non-compliance by us or our employees or agents of these or any other applicable laws or regulations could result in fines or penalties, or adversely affect our ability to operate and grow our business.

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Our use of hazardous materials in the development of our tests exposes us to risks related to accidental contamination or injury and requires us to comply with regulations governing hazardous waste materials.

Our research and development activities involve the controlled use of hazardous materials and chemicals. We cannot eliminate the risk of accidental contamination or injury to employees or third parties from the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could exceed our resources or any applicable insurance coverage we may have. In addition, we are subject on an ongoing basis to federal, state and local regulations governing the use, storage, handling and disposal of these materials and specified hazardous waste materials. An increase in the costs of compliance with such laws and regulations could harm our business and results of operations.

If the validity of an informed consent from a patient intake for Panorama or our other tests is challenged, we could be precluded from billing for such testing or forced to stop performing such tests, which would adversely affect our business and financial results.

All clinical data and blood samples that we receive are required to have been collected from individuals who have provided appropriate informed consent for us to perform our testing, both commercially and in clinical trials. We seek to ensure that the individuals from whom the data and samples are collected do not retain or have conferred on them any proprietary or commercial rights to the data or any discoveries derived from them. Our partners operate in a number of different countries in addition to the United States, and, to a large extent, we rely upon them to comply with the individual’s informed consent and with U.S. and international laws and regulations. The collection of data and samples in many different countries results in complex legal questions regarding the adequacy of informed consent and the status of genetic material under a large number of different legal systems. The individual's informed consent obtained in any particular country could be challenged in the future, and those informed consents could be deemed invalid, unlawful or otherwise inadequate for our purposes. Any findings against us, or our partners, could deny us access to, or force us to stop testing samples in, a particular country or could call into question the results of our clinical trials. We could also be precluded from billing third-party payers for tests for which informed consents are challenged, or could be requested to refund amounts previously paid by third-party payers for such tests. We could become involved in legal challenges, which could require significant management and financial resources and adversely affect our revenues and results of operations.

Risks Related to Our Intellectual Property

Any failure to obtain, maintain, and enforce our intellectual property rights could harm our competitive position.

Our success and ability to compete depend, in part, on our ability to obtain, maintain and enforce patents, trade secrets, trademarks and other intellectual property rights and to operate without having third parties infringe, misappropriate or circumvent the rights that we own or license. Our ability to prevent third parties from making, using, selling, offering to sell or importing our products or product candidates is dependent upon our ability to develop proprietary products and technologies and to obtain patents and maintain adequate protection of our intellectual property in the United States and other countries. We may be required to file infringement lawsuits to protect our interests, which can be expensive and time consuming. We cannot assure you that we would be successful in proving any such infringement by a third party, and we may become subject to counterclaims by such third parties. Some third-party infringers may have substantially greater resources than us and may be able to sustain the costs of complex infringement litigation more effectively than we can. Even if we prevail in an infringement action, we cannot assure you that we would be fully or partially financially compensated for any harm to our business. We may be forced to enter into a license or other agreement with the infringing third party on terms less profitable or otherwise less commercially acceptable to us than those negotiated between a willing licensee and a willing licensor. Any inability to stop third-party infringement could result in loss in market share of some of our products or even lead to a delay, reduction and/or inhibition of our development, manufacture or sale of some of our products. A product produced and sold by a third-party infringer may not meet our or other regulatory standards or may not be safe for use, which could cause irreparable harm to the reputation of our products, which in turn could result in substantial loss in our market share and profits.

The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and many companies have encountered significant challenges in establishing and enforcing their proprietary rights

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outside of the United States. These challenges can be caused by the absence of rules and methods for the establishment and enforcement of intellectual property rights outside of the United States. In addition, the patent positions of molecular diagnostic companies, including ours, can be highly uncertain and involve complex legal and factual questions, and have been and may continue to be affected by developments or uncertainty in the patent statute, patent case law or patent office rules and regulations. Three cases involving diagnostic method claims, "gene patents," and analytical tools have been decided by the Supreme Court in the past few years. The USPTO has issued guidance memoranda on subject matter eligibility analysis of all claims involving the issues addressed in these cases; this guidance is not final, and may change in light of future developments in the case law and in response to public feedback. While this guidance can inform decision-making at the USPTO, federal courts are not bound by this guidance. This uncertainty may materially affect our patents, our ability to obtain patents or the patents and applications of our collaborators and licensors. Therefore, we cannot assure you that any current or future patent applications will result in the issuance of patents that will protect our products or provide us with any competitive advantage.

Our patent procurement and enforcement positions are subject to numerous additional risks, including the following:

· we may fail to timely file for patent protection for inventions that are important to our success;

· current or future patent applications may not result in issued patents;

· we cannot be certain that we were the first to invent the inventions covered by pending patent applications or that we were the first to file such applications and, if we are not, we may be subject to priority or derivation disputes;

· we may be required to disclaim part or all of the term of certain patents or part or all of the term of certain patent applications;

· we could inadvertently abandon a patent or patent application, resulting in the loss of protection of certain intellectual property rights in a particular country;

· the claims of our issued patents may not cover our products or product candidates;

· our patents or patent applications may be declared invalid or unenforceable, or narrowed in scope, as a result of either a patent infringement action by us against a competitor with respect to its technology or product or a challenge by a third party in patent litigation or in proceedings before the USPTO or international patent offices;

· our competitors or others may have filed, and may in the future file, conflicting patent claims covering technology similar or identical to ours. The costs associated with challenging conflicting patent claims could be substantial, and it is possible that our efforts would be unsuccessful and may result in a loss of our patent position and the issuance or validation of the competing claims. Should such competing claims cover our technology, we could be required to obtain rights to those claims at substantial cost;

· there may be prior art of which we are not aware that may affect the validity of a patent claim. There also may be prior art of which we are aware that we do not believe affects the validity or enforceability of a claim, but which may nonetheless ultimately be found to do so;

· third parties may develop products which have the same or similar effect as our products without infringing our patents. Such third parties may also intentionally circumvent our patents by means of alternate designs or processes or file applications or be granted patents that would block or impede our efforts; and

· certain of our intellectual property was partly supported by a U.S. government grant awarded by the National Institutes of Health, and the government accordingly has certain rights in this intellectual property, including a non-exclusive, non-transferable, irrevocable worldwide license to use applicable inventions for any

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governmental purpose. Such rights also include "march-in" rights, which refer to the right of the U.S. government to require us to grant a license to the technology to a responsible applicant if we fail to achieve practical application of the technology or if action is necessary to alleviate health or safety needs, to meet requirements of federal regulations or to give preference to U.S. industry.

Any of these factors could adversely affect our ability to obtain commercially relevant or competitively advantageous patent protection for our products.

If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest, and our business may be adversely affected.

Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented, declared generic or determined to be infringing on other marks. As a means to enforce our trademark rights and prevent infringement, we may be required to file trademark claims against third parties or initiate trademark opposition proceedings. This can be expensive, particularly for a company of our size, and time-consuming, and we may not be successful. In addition, failure to maintain our trademark registrations, or to obtain new trademark registrations in the future, could limit our ability to protect our trademarks and impede our marketing efforts in the countries in which we operate. We may not be able to protect our rights to trademarks and trade names which we may need to build name recognition with potential partners or customers in our markets of interest.

Our pending trademark applications in the United States and in other foreign jurisdictions where we may file may not be allowed or may subsequently be opposed. Even if these applications result in registration of trademarks, third parties may challenge our use or registration of these trademarks in the future. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected.

If we are not able to adequately protect our trade secrets and other proprietary information, the value of our technology and products could be significantly diminished.

We rely on trade secret protection and proprietary know-how protection for our confidential and proprietary information. We have a policy of requiring our consultants, advisors and collaborators to enter into confidentiality agreements and our employees to enter into invention, non-disclosure and non-compete agreements. However, we cannot assure you that we have entered into appropriate agreements with all parties that have had access to our trade secrets, know-how or other proprietary information. We also cannot assure you that such agreements will provide for a meaningful protection of our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure of information, including as a result of breaches of our physical or electronic security systems. Any action to enforce our rights is likely to be time consuming and expensive, and may ultimately be unsuccessful, or may result in a remedy that is not commercially valuable. These risks are heightened in countries where laws or law enforcement practices may not protect proprietary rights as fully as in the United States or Europe. Any unauthorized use or disclosure of, or access to, our trade secrets, know-how or other proprietary information, whether accidentally or through willful misconduct, could have a material adverse effect on our programs and our strategy, and on our ability to compete effectively.

Third party claims of intellectual property infringement could result in costly litigation or other proceedings, which would be costly and time-consuming, and could limit our ability to commercialize our products.

Our success depends in part on our non-infringement of the patents or intellectual property rights of third parties. We operate in a crowded technology area in which multiple third parties own or control potentially relevant intellectual property, including patents, and there has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the genetic diagnostics industry. Third parties, including our competitors, may assert that we are employing their proprietary technology without authorization or that we are otherwise infringing their intellectual property rights. Defending against infringement claims is costly and may divert the attention of our management and technical personnel. If we are unsuccessful in defending against patent infringement claims, we could be forced to pay potentially substantial monetary damages; to obtain licenses from third parties, which we may be unable to do on

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acceptable terms, if at all, and which may require us to make substantial royalty payments; and/or be subjected to an injunction, which could block our ability to develop, commercialize and sell our products, or require us to make changes in our operating procedures that would be costly to implement, and could cause delays in product introductions while we attempt to develop alternative methods or products to avoid infringing third party patents or proprietary rights. Any of these or other adverse outcomes could materially and adversely affect our ability to offer our tests, as well as our financial condition and our results of operations, which would have a material adverse effect on our business.

We are currently involved in patent litigation with Sequenom. An adverse ruling in this proceeding could require us to pay damages (including treble damages), attorneys' fees, costs and expenses, or license fees, any of which could adversely affect our ability to offer Panorama, our ability to continue operations and our financial condition. For more information on our current legal and regulatory proceedings, see "Item 3—Legal Proceedings." We may also in the future be involved with other litigation or patent office actions with the same or other third parties. We expect that the number of such claims may increase as the number of products and the level of competition in our industry segments grows.

As we move into new markets and applications for our products, incumbent participants in such markets may assert their patents and other proprietary rights against us as a means of slowing our entry into such markets or as a means to extract substantial license and royalty payments from us. Our competitors and others may have significantly stronger, larger and/or more mature patent portfolios than we have. In addition, future litigation may involve patent holding companies or other adverse patent owners who have no relevant product revenues and against whom our own patents may provide little or no deterrence or protection. Therefore, our commercial success depends in part on our non-infringement of the patents or proprietary rights of third parties.

In addition, our agreements with some of our customers, suppliers or other entities with whom we do business require us to defend or indemnify these parties to the extent they become involved in infringement claims, including the types of claims described above. We could also voluntarily agree to defend or indemnify third parties if we determine it to be in the best interests of our business relationships. If we are required or agree to defend or indemnify third parties in connection with any infringement claims, we could incur significant costs and expenses that could adversely affect our business, financial condition and results of operations.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.

We employ individuals who were previously employed at other biotechnology or diagnostic companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or willfully used or disclosed confidential information of our employees' former employers or other third parties. We may also be subject to claims that former employers or other third parties have an ownership interest in our patents. Litigation may be necessary to defend against these claims, and if we are unsuccessful, we could be required to pay substantial damages and could lose rights to important intellectual property. Even if we are successful, litigation could result in substantial costs to us and could divert the time and attention of our management and other employees.

Risks Related to Ownership of Our Common Stock

The market price of our common stock has been and may be volatile which could subject us to litigation.

The trading prices of the securities of life sciences companies, including ours, have been and may continue to be highly volatile. Accordingly, the market price of our common stock is likely to be subject to wide fluctuations in response to numerous factors, many of which are beyond our control, such as those in this "Risk Factors" section and others including:

· actual or anticipated variations in our and our competitors' results of operations;

· announcements by us or our competitors of new products, significant acquisitions, strategic and commercial partnerships and relationships, joint ventures, collaborations or capital commitments;

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· changes in reimbursement practices by current or potential payers;

· issuance of new securities analysts' reports or changed recommendations for our stock;

· periodic fluctuations in our revenue, due in part to the way in which we recognize revenue;

· actual or anticipated changes in regulatory oversight of our products;

· developments or disputes concerning our intellectual property or other proprietary rights;

· commencement of, or our involvement in, litigation;

· announcement or expectation of additional debt or equity financing efforts;

· sales of our common stock by us, our insiders or our other stockholders;

· any major change in our management and

· general economic conditions and slow or negative growth of our markets.

In addition, if the market for life sciences stocks or the stock market in general experiences uneven investor confidence, the market price of our common stock could decline for reasons unrelated to our business, operating results or financial condition. The market price of our common stock might also decline in reaction to events that affect other companies within, or outside, our industry even if these events do not directly affect us. Some companies that have experienced volatility in the trading price of their stock have been the subject of securities class action litigation. For example, as described further in Item 3—Legal Proceedings, purportedsecurities class action lawsuits have been filed against Natera, our directors and certain of our officers and stockholders. Under certain circumstances, we have contractual and other legal obligations to indemnify and to incur legal expenses on behalf of current and former directors and officers, and on behalf of our current or former underwriters, in connection with the litigation described in Item 3 and in connection with any future lawsuits. Any lawsuit to which we are a party, with or without merit, may result in an unfavorable judgment. We also may decide to settle lawsuits on unfavorable terms. Any such negative outcome could result in payments of substantial damages or fines, damage to our reputation or adverse changes to our offerings or business practices. Defending against litigation is costly and time-consuming, and could divert our management's attention and resources. Furthermore, during the course of litigation, there could be negative public announcements of the results of hearings, motions or other interim proceedings or developments, which could have a material adverse effect on the market price of our common stock.

We have broad discretion in the use of the net proceeds we received in our initial public offering and may not use them effectively.

We have used and intend to use the net proceeds from our initial public offering (“IPO”) for working capital and general corporate purposes and continued investments in research and development for our core technology and development of our product offerings. In addition, we may also use a portion of the net proceeds from our IPO to acquire complementary businesses, technologies or other assets, although we have no present commitments. Accordingly, our management has broad discretion in the application of the net proceeds to us from our IPO. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from our IPO in a manner that does not cause us to become an unregistered investment company pursuant to the Investment Company Act of 1940.

We will continue to incur significantly increased costs and devote substantial management time as a result of being a public company.

As a public company, we have, and will continue to, incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we are subject to the reporting requirements of the Securities

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Exchange Act of 1934, as amended, or the Exchange Act, and are required to comply with the applicable requirements of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC and the Nasdaq Global Select Market, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance with these requirements will continue to increase our legal and financial compliance costs and will make some activities more time consuming and costly. Our management and other personnel have limited experience managing a public company and preparing public filings. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, which will increase when we are no longer an emerging growth company, as defined by the Jumpstart Our Businesses Act of 2012, or the JOBS Act. We hired, and we expect that we will need to continue to hire, additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and may need to establish an internal audit function. We cannot predict or estimate the amount of additional costs we may incur as a public company or the timing of such costs. Additional compensation costs and any future equity awards will increase our compensation expense, which would increase our general and administrative expense and could adversely affect our profitability. Also, as a public company it is more expensive for us to obtain director and officer liability insurance on reasonable terms. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers.

We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an emerging growth company. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

For as long as we continue to be an emerging growth company, we intend to take advantage of certain other exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict whether investors will find our common stock less attractive because we rely on these exemptions, which could result in a less active trading market for our common stock and increased volatility in our stock price.

We will remain an emerging growth company until the earliest of (a) the end of the fiscal year (i) following the fifth anniversary of the closing of our IPO, or December 31, 2020, (ii) in which the market value of our common stock that is held by non-affiliates exceeds $700 million and (iii) in which we have total annual gross revenues of $1 billion or more during such fiscal year, and (b) the date on which we issue more than $1 billion in non-convertible debt in a three-year period.

If we are unable to implement and maintain effective internal controls over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be adversely affected.

As a public company, we are required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal controls over financial reporting and, beginning with our annual report for the year ending December 31, 2016, provide a management report on internal controls over financial reporting. The Sarbanes-Oxley Act also requires that our management report on internal controls over financial reporting be attested to by our independent registered public accounting firm, to the extent we are no longer an emerging growth company. We do not expect to have our independent registered public accounting firm attest to our management report on internal controls over financial reporting for so long as we are an emerging growth company.

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If we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We are in the process of designing and implementing the internal controls over financial reporting required to comply with this obligation, which process will be time consuming, costly and complicated. If we identify material weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal controls over financial reporting are effective, or, when required in the future, if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities.

We do not intend to pay dividends on our capital stock so any returns will be limited to changes in the value of our common stock.

We have never declared or paid any cash dividends on our capital stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, our ability to pay cash dividends on our capital stock may be prohibited or limited by the terms of any current or future debt financing arrangement. Any return to stockholders will therefore be limited to the increase, if any, in the price of our common stock.

Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause the price of our common stock to decline.

In the future, we may issue additional securities or sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. We also expect to issue common stock to employees and directors pursuant to our equity incentive plans. If we sell common stock, convertible securities or other equity securities in subsequent transactions, or common stock is issued pursuant to equity incentive plans, investors may be materially diluted. New investors in such subsequent transactions could gain rights, preferences and privileges senior to those of holders of our common stock.

Sales of a substantial number of shares of our common stock in the public markets could cause the price of our common stock to decline.

Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.

Certain holders of shares of our common stock are entitled to rights with respect to the registration of their shares under the Securities Act of 1933, as amended, or the Securities Act. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by our affiliates as defined in Rule 144 under the Securities Act. Any sales of securities by these stockholders could adversely affect the trading price of our common stock.

We may issue our shares of common stock or securities convertible into our common stock from time to time in connection with a financing, acquisition, investments or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the trading price of our common stock to decline.

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If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our common stock could be adversely affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and trading volume to decline.

Insiders have substantial control over us and will be able to influence corporate matters.

As of December 31, 2015, our directors and executive officers and their affiliates beneficially own, in the aggregate, approximately 50.2% of our outstanding capital stock. As a result, these stockholders will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or its assets. This concentration of ownership could limit stockholders' ability to influence corporate matters and may have the effect of delaying or preventing a third party from acquiring control over us.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the market price of our common stock.

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could depress the market price of our common stock by acting to discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions, among other things:

· authorize the issuance of "blank check" preferred stock that our board of directors could use to implement a stockholder rights plan;

· prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

· eliminate the ability of our stockholders to call special meetings of stockholders;

· establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings;

· establish a classified board of directors so that not all members of our board are elected at one time;

· permit the board of directors to establish the number of directors;

· provide that directors may only be removed "for cause" and only with the approval of 75% of our stockholders;

· require super-majority voting to amend some provisions in our amended and restated certificate of incorporation and amended and restated bylaws; and

· provide that the board of directors is expressly authorized to make, alter or repeal our amended and restated bylaws.

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In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control of our company. Section 203 imposes certain restrictions on merger, business combinations and other transactions between us and holders of 15% or more of our common stock.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law or any action asserting a claim against us that is governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, financial condition and results of operations.

ITEM 1B.UNRESOLVED STAFF COMMENTS

None.

ITEM 2.PROPERTIES

Our corporate headquarters are located in San Carlos, California. We currently lease approximately 88,000 square feet of laboratory and office space at 201 Industrial Road in San Carlos pursuant to two separate subleases, one for approximately 61,000 square feet (the “First Space”) and the other for approximately 27,000 square feet (the “Second Space”) expiring in October 2016 and January 2017, respectively.In October 2015, we entered into a lease agreement directly with the landlord of our San Carlos facilities, the term of which (i) will begin in October 2016 with respect to the First Space and (ii) is expected to begin in January 2017 with respect to the Second Space, subject to the existing primary lessee of the Second Space not exercising its right to renew its existing lease for that space. The initial term of the lease will expire in October 2023, and may be extended for an additional five years.

We also lease approximately 23,000 square feet of office space in Redwood City, California pursuant to a sublease that expires in August 2016.

Our subsidiary leases a total of approximately 102,000 square feet of laboratory and office space in Austin, Texas, comprising approximately 94,000 square feet pursuant to a lease expiring in November 2026 and approximately 8,000 square feet pursuant to a lease expiring in October 2016.

We may expand our facilities capacity as our employee base and laboratory processing needs grow. We believe that we will be able to obtain additional space on commercially reasonable terms.

ITEM 3.LEGAL PROCEEDINGS

From time to time, we are involved in legal proceedings. The results of such legal proceedings and claims cannot be predicted with certainty, and regardless of the outcome, legal proceedings could have an adverse impact on us because of defense and settlement costs, diversion of resources and other factors.

On January 6, 2012, we filed a declaratory judgment action in the U.S. District Court for the Northern District of California, alleging that U.S. Patent No. 6,258,540 licensed by Sequenom from Isis Innovation Limited, Inc., or the '540 patent, is invalid, unenforceable and not infringed by us. The '540 patent relates to non-invasive prenatal diagnosis

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methods. This case was consolidated in the Northern District of California with a case that Sequenom, an affiliate of Sequenom, and Isis brought on January 24, 2012 in the Southern District of California alleging infringement by us and DDC, the licensee, and at the time, the distributor, of our non-invasive paternity test, of certain claims of the '540 patent. Ariosa and Verinata also filed declaratory judgment actions regarding the '540 patent against Sequenom in the Northern District. Sequenom asserted counterclaims of infringement of the '540 patent against both Ariosa and Verinata in those respective cases. All of these cases were designated related cases. On October 30, 2013, the District Court issued an order granting Ariosa's motion for summary judgment in its case against Sequenom, finding that the claims asserted against Ariosa are invalid under 35 U.S.C. §101 for reciting non-patentable subject matter. Many of the claims of the '540 patent asserted against us were invalidated by this order. Subsequently, Sequenom entered into stipulations with Verinata and us conditionally agreeing that the remaining asserted claims of the '540 Patent should be deemed invalid under 35 U.S.C. §101. The Court then entered judgment in favor of Verinata and us in the respective cases in November 2013. Sequenom has appealed all three judgments to the Court of Appeals for the Federal Circuit, or CAFC. The CAFC consolidated the Ariosa, Verinata and our cases for purposes of appeal, such that the CAFC would be able to make a single ruling on the '540 patent claims that apply to all parties involved. The appellate arguments were heard on November 7, 2014. On December 2, 2014, Sequenom and Verinata settled the pending claims between them. On June 12, 2015, the CAFC affirmed the district court's finding of invalidity with respect to us and Ariosa. On August 13, 2015, Sequenom requested a rehearing en banc by the full panel of the CAFC, and on October 19, 2015, we and Ariosa each filed a response to Sequenom’s request. On December 2, 2015, Sequenom’s petition for a rehearing en banc was denied. On March 21, 2016, Sequenom filed a petition for writ of certiorari with the Supreme Court. We intend to continue to vigorously assert our claims and defend against the counterclaims in this lawsuit, but we cannot be certain of the outcome.

On February 17, 2016 and March 10, 2016,  two purported class action lawsuits  were filed in the Superior Court of the State of California for the County of San Mateo, against Natera, our directors and certain of our officers and 5% stockholders and their affiliates, and each of the underwriters of our July 1, 2015 initial public offering (the "IPO"). The complaints  assert claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended. The complaints allege, among other things, that the Registration Statement and Prospectus for our IPO contained materially false or misleading statements, and/or omitted material information that was required to be disclosed, about our business and prospects. Among other relief, the complaints seek class certification, unspecified compensatory damages, rescission, attorneys' fees, and costs. We intend to defend the mattervigorously. We are still in the preliminary stages of reviewing the allegations made in the complaints and cannot provide any assurance as to the ultimate outcome or that an adverse resolution would not have a material adverse effect on our financial condition and results of operations.In light of, among other things, the early stage of the litigations, we are unable to predict the outcome and are unable to make a meaningful estimate of the amount or range of loss, if any, that could result from any unfavorable outcome.

On March 4, 2016, a lawsuit was filed against us in the Superior Court of the State of California for the County of San Diego, by a patient alleging that Natera failed to perform a test that was ordered. The complaint seeks unspecified damages. We intend to vigorously defend against the claims in this lawsuit, and assert any counterclaims that may be available to us. We cannot provide any assurance as to the ultimate outcome or that an adverse resolution of this lawsuit would not have a material adverse effect on our financial condition and results of operations.In light of, among other things, the early stage of the litigation, we are unable to predict the outcome of this matter and are unable to make a meaningful estimate of the amount or range of loss, if any, that could result from an unfavorable outcome.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price of Our Common Stock

Our common stock hasbeen traded on The Nasdaq Global Select Market under the symbol “NTRA” since July 2, 2015, the date of our initial public offering.  Prior to that date, there was no public trading market for our common stock.

The following table sets forth on a per share basis, for the periods indicated, the low and high closing sales prices of our common stock as reported by The Nasdaq Global Select Market.

	High		Low
Year Ended December 31, 2015
Third quarter (from July 2, 2015)	$	24.36	$	10.25
Fourth quarter	$	12.14	$	7.74

Holders

As of December 31, 2015, we had 42 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.  This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

Dividends

No cash dividends have ever been paid or declared on our common stock. We currently intend to retain all future earnings, if any, for use in our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors our board of directors may deem relevant.

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Performance Graph

This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any of our other filings under the Exchange Act or the Securities Act except to the extent we specifically incorporate it by reference into such filing. The following graph compares the cumulative total stockholder return on our common stock between July 2, 2015 and December 31, 2015 with the cumulative total return of (i) the NASDAQ Biotechnology Index and (ii) the NASDAQ Composite Index over the same period.The chart assumes $100 was invested at the close of market on July 2, 2015, and assumes the reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance.

	Base Period 7/2/15	7/31/2015	8/31/2015	9/30/2015	10/30/2015	11/30/2015	12/31/2015
Company/Index
Natera, Inc.	100.00	79.55	69.57	47.71	36.28	39.09	47.49
NASDAQ Biotechnology Index	100.00	103.28	92.35	81.76	87.98	90.25	91.34
NASDAQ Composite Index	100.00	102.38	95.35	92.23	100.89	101.99	99.96

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Parties

None.

Use of Proceeds from Initial Public Offering

In July 2015, we completed an initial public offering (“IPO”), and subsequently in August 2015, we completed the sale of additional shares upon exercise of the underwriters’ over-allotment option. In connection with the IPO, we sold 10,900,000 shares of common stock at $18.00 per share, which raised $178.5 million in proceeds, net of underwriting discounts, commissions, and offering expenses.The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-204622), which was declared effective by the SEC on July 1, 2015. There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus dated July 1, 2015 and filed with the SEC on July 2, 2015 pursuant to Rule 424(b)(4) of the Securities Act.

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ITEM 6.SELECTED FINANCIAL DATA

The following table presents our selected historical condensed consolidated financial data. The consolidated statements of operations data for each of the three fiscal years ended December 31, 2015, 2014 and 2013 and the consolidated balance sheet data as of December 31, 2015 and 2014 are derived from our audited consolidated financial statements included elsewhere in this annual report on Form 10-K.

The consolidated balance sheet data as of December 31, 2013 is derived from audited financial statements that are not included in this annual report on Form 10-K.

The selected historical consolidated balance sheet and operating data presented below should be read in conjunction with the consolidated financial statements and the notes to such statements and “Management's Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this annual report on Form 10-K. Historical results are not necessarily indicative of the results to be expected in the future.

		Year ended December 31,
(in thousands, except per share data)		2015		2014		2013
Selected Statement of Operations Data:
Total revenues	$	190,355	$	159,289	$	55,171
Total cost and expenses		250,193		158,624		80,439
Interest expense and other income (expense), net		(10,437)		(5,817)		(11,842)
Net loss		(70,275)		(5,152)		(37,110)
Net loss per common share, basic and diluted		(2.68)		(1.07)		(9.66)
		As of December 31,
		2015		2014		2013
Selected Balance Sheet Data:
Cash, cash equivalents and restricted cash	$	30,531	$	88,487	$	31,392
Short-term investments		201,586		-		-
Inventory		8,093		11,542		10,652
Property and equipment, net		12,710		14,574		9,791
Total assets		265,240		123,623		59,723
Debt		42,090		26,814		24,307
Total liabilities		80,475		54,346		46,033
Convertible preferred stock		-		240,612		185,199
Total stockholders' equity (deficit)		184,765		(171,335)		(171,509)

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and related notes included in Part II, Item 8 of this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Risk Factors” included elsewhere in this report.

Overview

We are a rapidly growing diagnostics company with proprietary molecular and bioinformatics technology that we are deploying to change the management of genetic disease worldwide. Our novel molecular assays reliably measure many informative regions across the genome from samples as small as a single cell. Our statistical algorithms combine these measurements with data available from the broader scientific community to detect a wide range of serious conditions with best in class accuracy and coverage. In addition to our direct sales force in the United States, which we are continuing to expand, we have a global network of approximately 70 laboratory and distribution partners, including many of the largest international laboratories. We are enabling even wider adoption of our technology with our introduction of a global cloud-based distribution model. We have launched seven molecular diagnostic tests since 2009, and we intend to launch new products in prenatal testing and oncology in the future. We generate revenues primarily from the sale of Panorama, our non-invasive prenatal test, or NIPT, which we commercially launched in March 2013. Over 254,000 Panorama tests were accessioned during the year ended December 31, 2015, which represents an increase of approximately 37% over 2014 and of approximately 291% increase over 2013. Our revenues have grown to $190.4 million from $159.3 million and $55.2 million for the years ended December 31, 2014 and 2013, respectively.

We were formed in 2003 under our former name, Gene Security Network. From 2006 through 2013, the National Institutes of Health awarded us cumulative grants of $5.7 million to conduct various research projects including non-invasive aneuploidy screening on circulating fetal cells for prenatal diagnosis. An initial period of research and development was followed by the commercialization of Spectrum Preimplantation Genetic Screening (PGS) in 2009 and Spectrum Preimplantation Genetic Diagnosis (PGD) in 2010; Anora Products of Conception (POC) in 2010; our non-invasive prenatal paternity test in 2011; Horizon Carrier Screen (CS) in 2012; Panorama NIPT in 2013; our microdeletions panel for Panorama in 2014; and Constellation in 2015.

In the year ended December 31, 2015, we processed most of our tests in our laboratory certified under the Clinical Laboratory Improvement Amendments of 1988, or CLIA, in San Carlos, California. A significant portion of our Horizon Carrier Screening testing is performed by third-party laboratories. Our customers include independent laboratories, national and regional reference laboratories, medical centers and physician practices. We market and sell our tests both through our direct sales force and those of our laboratory and distribution partners. We bill clinics, laboratory and distribution partners, patients and insurance payers for the tests we perform or are performed on our behalf. In cases where we bill laboratory and distribution partners, our partners in turn bill clinics, patients and insurance payers. Insurers reimburse for NIPT procedures based on positive coverage determinations, which means that the insurer has determined that NIPT in general is medically necessary for this category of patient. In the United States, the payers with positive NIPT coverage determinations include UnitedHealthcare, AETNA, Anthem, Humana and CIGNA. We and our laboratory partners have in-network contracts with insurance providers that account for over 160 million covered lives in the United States. A "covered life" means a subscriber, or a dependent of a subscriber, who is insured under an insurance policy with the insurance carrier identified. The number of covered lives represented by insurers that have positive coverage determinations or with which we or our laboratory partners have a contract provides a measure of our access to the healthcare market. Although our target market for NIPT is a much smaller subset of the total number of covered lives because it excludes subscribers for whom our NIPT would not be performed, such as men, children and post-menopausal women, we believe the number of U.S. covered lives for whom we have access under contract represents an important indicator of our access to the total available market for our products. Insurers also reimburse for our products through out-of-network claims submission processes where we do not have a contract with that insurer.

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The principal focus of our commercial operations currently is to distribute molecular diagnostic tests through both our direct sales force and laboratory and distribution partners, and the number of tests that we accession is a key indicator that we use to assess our business. A test is accessioned when we receive the test, the relevant information about the test is entered into our computer system and the test sample is routed into the appropriate sample flow. We accessioned over 310,000 tests for the year ended December 31, 2015, compared to over 215,000 tests for the year ended December 31, 2014. This increase in volume is primarily due to the commercial growth of our Panorama test. We significantly increased the number of our domestic sales representatives in the third quarter of 2014 through the second quarter of 2015 in an effort to increase the number of tests distributed through our direct sales force. The percent of our revenues attributable to our U.S. direct sales force for the year ended December 31, 2015 was 77%, up from 59% for the year ended December 31, 2014. The percent of our revenues attributable to U.S. laboratory and distribution partners for the year ended December 31, 2015 was 10%, down from 26% for theyear ended December 31, 2014. Our ability to increase our revenues and gross profit will depend on our ability to further penetrate the U.S. market with our direct sales force. The percent of our revenues attributable to international laboratory partners and other international sales for the year ended December 31, 2015 was 13%, down from 14% for the year ended December 31, 2014.

In addition to distributing molecular diagnostic tests, we seek to establish licensing arrangements with laboratoriesunder our cloud-based distribution model, whereby our laboratory licensees run the molecular workflows themselves and then access bioinformatics algorithms through our cloud-based Constellation software.  This cloud-based distribution model results in lower revenues and gross profit per test than in cases where we process a test ourselves;  however, because we don’t incur the costs of processing the tests ourselves, our costs per test under this model are also lower.In February 2014, we entered into a licensing and service arrangement with DNA Diagnostics Center, Inc., or DDC, to enable the development of a non-invasive prenatal paternity test based on our proprietary technology. DDC commercializes this test, and we receive royalty revenues from DDC. We have recognized $2.2 millionand $1.1 million in revenues from our licensing arrangements during the years ended December 31, 2015 and 2014, respectively. The DDC arrangement commenced in the second quarter of 2014 and our other arrangements commenced during the fourth quarter of 2015.  

Our revenues increased to $190.4 million in the year ended December 31, 2015 from $159.3 million and $55.2 million in theyears ended December 31,  2014 and 2013, respectively. Panorama revenues accounted for $139.6 million, or 73%, of our revenues for the year ended December 31, 2015; $116.1 million, or 73%, of our revenues for the year ended December 31, 2014; and $30.9 million, or 56%, of our revenues for the year ended December 31, 2013.  For the year ended December 31, 2015, there were no customers exceeding 10% of the total revenue on an individual basis. Bio-Reference represented 5% of our revenues for the year ended December 31, 2015.Sales to Quest Diagnostics Incorporated, Progenity Inc., and Bio-Reference Laboratory, Inc. represented 10%, 5%, and 6% of our revenues for the year ended December 31, 2014, respectively, and 16%, 12% and 5% of our revenues for the year ended December 31, 2013, respectively. Both Quest Diagnostics Incorporated and Progenity Inc., which were our two largest laboratory partners in 2013 and who represented a combined 51% of our Panorama revenues in 2013, terminated their agreements with us in 2014. Revenues from customers outside the United States were $25.4 million, $22.8 million and $6.9 million, representing approximately 13%, 14% and 13%, respectively, of our revenues, for the years ended December 31, 2015, 2014 and 2013, respectively. Most of our revenues have been denominated in U.S. dollars, but we began to generate revenue in foreign currency in 2015, primarily denominated in Euros.

Our net losses for the years ended December 31, 2015, 2014 and 2013 were $70.3 million, $5.2 million and $37.1 million, respectively. This included non-cash stock compensation expense of $7.3 million, $5.2 million and $1.7 million for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, we had an accumulated deficit of $250.1 million.

Components of the Results of Operations

Revenues

We generate revenues from the sale of our genetic tests, primarily from the sale of our NIPT, Panorama. We assess whether the fee is fixed or determinable based on the nature of the fee charged for the services delivered and existing contractual arrangements. For tests performed where an agreed upon reimbursement rate or fixed fee and a predictable

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history or likelihood of collections exists, we recognize revenues upon delivery of a report to the prescribing physician or clinic based on the established billing rate less contractual and other adjustments, such as an allowance for doubtful accounts, to arrive at the amount that we expect to collect. In all other situations, as we do not have a fixed or determinable price, a sufficient history of collection or we are not able to determine the price for our test, we recognize revenue when cash is received.

Our two primary distribution channels are our: direct sales force and our laboratory and distribution partners. We have also recently implemented a cloud-based distribution model, from which we begin recognizing revenue in the fourth quarter of 2015. In cases where we promote our tests through our direct sales force, we generally bill directly to a patient, clinic or insurance carrier, or a combination of the insurance carrier and patient for the fees. We do not maintain an account receivable balance in our financial statements for outstanding billing to the insurance payers because we cannot determine the collectable portion of the billings until cash is received.

In cases where we sell our tests through our laboratory partners, the majority of our laboratory partners bill the patient, clinic or insurance carrier for the performance of our tests, and we are entitled to either a fixed price per test or a percentage of their collections. For tests sold through a limited number of our laboratory partners, we bill directly to a patient, clinic or insurance carrier, or a combination of the insurance carrier and patient for the fees.

Revenue recognized on a cash basis represented 85%, 67% and 45% of our revenues for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, we had  12 licensing and service arrangements with laboratories under our cloud-based distribution model. For the year ended December 31, 2015, we recognized revenue from only three such arrangements.  

The fixed fees identified in contracts with laboratory partners change only if a pricing amendment is agreed upon between both parties. For cases in which there is no fixed price established with a laboratory partner, we then recognize revenues from partner distributed tests on a cash basis.

Our ability to increase our revenues will depend on our ability to further penetrate the domestic and international markets and, in particular generate sales through our direct sales force, offer additional tests, obtain reimbursement from additional third-party payers and increase our reimbursement rate for tests performed. However, as we enter into additional in-network contracts with insurance providers, we anticipate our average reimbursement per test will decrease.

Cost of Product Revenues

The components of our cost of product revenues are materials and service costs, personnel costs, including stock-based compensation expense, equipment and infrastructure expenses associated with testing samples, electronic medical record, order and delivery systems, shipping charges to transport samples, third-party test fees, and allocated overhead including rent, information technology costs, equipment depreciation and utilities. Costs associated with performing tests are recorded when the test is processed regardless of whether and when revenues are recognized with respect to that test. As a result, our cost of product revenues as a percentage of revenues may vary significantly from period to period because we do not recognize all revenues in the period in which the associated costs are incurred. We expect cost of product revenues in absolute dollars to increase as the number of tests we perform increases.

However, having rapidly achieved scale, we have increased our focus on more efficient use of labor, automation, and DNA sequencing. For example, we have updated the molecular and bioinformatics process for Panorama to further reduce the sequencing reagents, test steps and associated labor costs required to obtain a test result, while increasing the sensitivity of the test to allow it to run with lower fetal fraction input. These improvements also reduced the frequency of the need to require blood redraws from the patient. In addition, we are continuing to grow our cloud-based distribution network. This model reduces sample shipping, labor, and material costs at our CLIA-certified laboratory in California. Four of our laboratory licensees have begun running tests developed under license from us in their own laboratories, leaving us to provide only the algorithmic data analysis in the cloud through our Constellation software and it’s maintenance. We have agreements with various other laboratories, and are in active discussions with many other potential licensees, to implement this distribution model.

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Research and Development

Research and development expenses include costs incurred to develop our technology, collect clinical samples and conduct clinical studies to develop and support our products. These costs consist of personnel costs, including stock-based compensation expense, prototype materials, laboratory supplies, consulting costs, regulatory costs, electronic medical record set up costs, costs associated with setting up and conducting clinical studies at domestic and international sites and allocated overhead, including rent, information technology, equipment depreciation and utilities. We expense all research and development costs in the periods in which they are incurred. We expect our research and development expenses will increase in absolute dollars in future periods as we continue to invest in research and development activities related to developing additional products. In the near term we will continue to grow research and development expenses in support of Panorama and other new products and programs, including the application of our proprietary technologies for cancer and other disease detection.

Selling, General and Administrative

Selling, general and administrative expenses include executive, selling and marketing, legal, finance and accounting, human resources, billing and client services. These expenses consist of personnel costs, including stock-based compensation expense, direct marketing expenses, audit and legal expenses, consulting costs, education seminars, payer outreach programs and allocated overhead, including rent, information technology, equipment depreciation, and utilities. In the near term, we expect selling, general and administrative expenses will increase driven by the costs of hiring additional sales personnel associated with further penetrating the domestic and international market, and marketing and education expenses to drive market penetration and reimbursement. We also expect selling, general and administrative expenses to increase as a result of becoming a public company. These expenses are related to compliance with the rules and regulations of the Securities and Exchange Commission and the Nasdaq Global Select Market, additional insurance expenses, investor relations activities and other administrative and professional services. We also expect our selling, general and administrative expenses will increase in absolute dollars as we expand our billing and client services functions.

Interest Expense

Interest expense is attributable to borrowing under our senior secured term loan and our equipment financing facility. We also recognize revenue-based royalties to the lender associated with our senior secured term loan as part of interest expense.

Interest (Expense) Benefit from Changes in the Fair Value of Long-Term Debt

Interest expense also arises from changes in the fair value associated with our senior secured term loan.

Interest Income and Other (Expense), Net

Interest/other income (expense) is from interest earned on our cash, settlement over contract dispute,debt extinguishment of our secured term loan and other expense relates to the changes in the fair value associated with our warrants.

Critical Accounting Policies

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. 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 revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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We consider our critical accounting policies and estimates to be revenue recognition; income taxes; fair value measurement and stock-based compensation.

Revenue Recognition

We consider our services rendered when we deliver reports of our test results. When we have contracted a fixed or determinable price for our services and when collectability of revenues is reasonably assured, we recognize revenues upon delivery of test reports which include contractual and other adjustments, such as an allowance for doubtful accounts, to arrive at the amount that we expect to collect. The fixed fees identified in contracts change only if a pricing amendment is agreed upon between the parties. For cases in which there is no price established, we recognize revenues on a cash basis. In all other situations, as we do not have a sufficient history of collection and are not able to determine a predictable pattern of payment, we recognize revenues when cash is received.

Certain of our arrangements include multiple deliverables. For revenue arrangements with multiple deliverables, we evaluate each deliverable to determine whether it qualifies as a separate unit of accounting. This determination is based on whether the deliverable has "stand-alone value" to the customer and whether a general right of return exists. The consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling price of each deliverable. The consideration allocated to each unit of accounting is recognized as the related goods or services are delivered, limited to the consideration that is not contingent upon future deliverables. We use judgment in identifying the deliverables in our arrangements, assessing whether each deliverable is a separate unit of accounting, and in determining the best estimate of selling price for certain deliverables. We also use judgment in determining the period over which the deliverables are recognized in certain of our arrangements. Any amounts received that do not meet the criteria for revenue recognition are recorded as deferred revenue until such criteria are met.

As of December 31, 2015, we had  12 licensing and service arrangements with laboratories under our cloud-based distribution model. For the year ended December 31, 2015, we recognized revenue from only three such arrangements.  Royalty revenues from these licensing and service agreements are recognized when earned and are included in other revenues in the statement of operations.

Income Taxes

We file U.S. federal income tax returns and tax returns in various states. To date, we have not been audited by the Internal Revenue Service or any state income tax authority. We have not recorded any U.S. federal income tax expense for the years ended December 31, 2015, 2014 and 2013, due to our history of operating losses.

As of December 31, 2015, our net deferred tax assets before valuation allowance were $51.2 million, for which we established a full valuation allowance. The deferred tax assets were primarily comprised of federal and state tax net operating losses, or NOLs, and tax credit carryforwards. As of December 31, 2015, we had federal and state NOLs carryforwards of approximately $114.5 million and $73.2 million, respectively, which begin to expire in 2027 and 2017, respectively, if not utilized. The deferred tax assets related to NOLs do not include excess tax benefits from employee stock option exercises. We also had federal research and development credit carryforwards of approximately $4.6 million, which begin to expire in 2027, and state research and development credit carryforwards of approximately $3.4 million, which can be carried forward indefinitely.

We are required to reduce our deferred tax assets by a valuation allowance if it is more likely than not that some or all of our deferred tax assets will not be realized. We must use judgment in assessing the potential need for a valuation allowance, which requires an evaluation of both negative and positive evidence. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. In determining the need for and amount of our valuation allowance, if any, we assess the likelihood that we will be able to recover our deferred tax assets using historical levels of income, estimates of future income and tax planning strategies. As a result of historical cumulative losses and, based on all available evidence, we believe it is more likely than not that our recorded net deferred tax assets will not be realized. Accordingly, we recorded a valuation allowance against all of our

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net deferred tax assets as of December 31, 2015. We will continue to maintain a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this allowance.

Federal and California tax laws impose substantial restrictions on the utilization of NOLs and credit carryforwards in the event of an "ownership change" for tax purpose, as defined in Section 382 of the Internal Revenue Code. Accordingly, our ability to utilize these carryforwards may be limited as the result of such ownership change. Such a limitation could restrict the use of the NOLs in future years and possibly a reduction of the NOLs available.

We are subject to U.S. federal income taxes and to income taxes in various states in the United States. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations, and require significant judgment to apply. We are no longer subject to U.S. federal, state, and local tax examinations by tax authorities for tax years before 2010. We are subject to U.S. federal, state and local tax examinations by tax authorities for all prior tax years since incorporation.

As of December 31, 2015, the balance of gross uncertain tax benefits was $2.4 million. In 2015, the balance of gross uncertain tax benefits increased $1.0 million related to current year research credits claimed. The reversal of the uncertain tax benefits will not affect our effective tax rate to the extent that we continue to maintain a full valuation allowance against our deferred tax assets. We do not anticipate significant changes to our current uncertain tax positions through December 31, 2016. We recognize any interest and/or penalties related to income tax matters as a component of income tax expense. As of December 31, 2015, there were no accrued interest and penalties related to uncertain tax positions.

Fair Value Measurements

Our financial assets and liabilities carried at fair value comprise investments in money market funds and liabilities for preferred stock warrants and our senior secured term loan. The fair value accounting guidance requires that assets and liabilities carried at fair value be classified in one of the following three categories:

· Level I: Quoted prices in active markets for identical assets and liabilities that we have the ability to access;

· Level II: Observable market-based inputs or unobservable inputs that are corroborated by market data, such as quoted prices, interest rates, and yield curves; or

· Level III: Inputs that are unobservable data points that are not corroborated by market data.

This hierarchy requires that we use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

Fair Value—Senior Secured Term Loan

We have elected to account for our senior secured term loan at fair value. The fair value of this liability represents a term loan, royalty interest, and a delayed draw loan that is based upon the achievement of certain revenues targets over the life of the contract. The fair value of the liability is determined using Level III inputs such as discounted cash-flow methodology, a Monte Carlo Simulation model for projected revenues, and the Longstaff-Schwartz model for royalty payments with significant inputs that include discount rate, projected revenues, projected royalty payments and percentage probability of occurrence for projected revenues and royalty payments. A significantly different fair value measurement could result from the following: a significant change in projected revenues in isolation, a significant change in the timing of the delayed draw loan, a significant change in the discount rate in isolation, or changes in the probability of occurrence between the outcomes in isolation.In October 2015, we paid off the entire borrowings under the secured term loan.  We made a payment comprising in principal, prepayment penalty and royalty payment applied toward the royalty obligation. This payment released us from all future loan payments, royalty payments and all associated liens securing the loan.

Fair Value—Warrants

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Our common stock warrants are valued using Level III inputs; we use inputs from a Black-Scholes model with market volatility that is determined for comparable companies in the same business sector. Significant judgement is employed in determining the Level III inputs such as volatility and the term.  Changes to our assumptions could have a material impact on our results of operations in any given period and actual results may differ from estimates. For example significant lower estimates of volatility would result in material lower fair value measurement while higher volatilities would result in higher fair value measurements. carrying amounts of cash, accounts receivable, and accounts payable approximate their fair value and are excluded from the table above.

Stock-Based Compensation

We have included stock-based compensation as part of our cost of revenues and our operating expenses in our statements of operations as follows:

	Year ended December 31,
	2015						2014						2013
	Employee		Non-Employee		Total		Employee		Non-Employee		Total		Employee		Non-Employee		Total
	(in thousands)
Cost of revenues	$	351	$	241	$	592	$	262	$	29	$	291	$	55	$	7	$	62
Research and development		1,566		9		1,575		1,563		30		1,593		612		4		616
Selling, general and administrative		4,993		166		5,159		3,180		93		3,273		970		9		979
Total	$	6,910	$	416	$	7,326	$	5,005	$	152	$	5,157		1,637	$	20	$	1,657

Stock-based compensation related to stock options granted to our employees and non-employees is measured at the grant date based on the fair value of the award. The fair value is recognized as expense over the requisite service period, which is generally the vesting period of the respective awards. No compensation cost is recognized on stock options for employees and non-employees who do not render the requisite service and therefore forfeit their rights to the stock options. We use the Black-Scholes option-pricing model to estimate the fair value of our stock options. We account for stock options issued to non-employees based on the estimated fair value of the awards using the Black-Scholes option-pricing model. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest, and the resulting change in value, if any, is recognized in our statements of operations during the period that the related services are rendered.

Effective in the year ended December 31, 2015, pursuant to agreements with our option holders, we changed the estimated expiration of our repurchase right for 1.3 million exercised and unvested shares outstanding that are subject to repurchase right held by us through the 210 days after the date of the prospectus filed in connection with our initial public offering. Accordingly the unrecognized compensation expense is being accelerated over a shorter performance period through January 2016. As a result of this acceleration, we recorded an additional $1.3 million in stock-based compensation expense during the year ended December 31, 2015.

We estimate the fair value of our stock options granted to employees on the grant date using the Black‑Scholes option‑pricing model. The fair value of employee stock options is amortized on a straight‑line basis over the requisite service period of the awards, generally the vesting period. The fair value of employee stock options was estimated using the following assumptions:

	Year ended December 31,
	2015					2014					2013
Expected term	5.6		—	10.0		4.91		—	7.06		6.0
Expected volatility	69.7	%	—	78.8	%	73.4	%	—	87.0	%	63.7	%	—	85.7	%
Expected dividend rate				0	%				0	%				0	%
Risk-free interest rate	1.56	%	—	2.32	%	1.65	%	—	2.04	%	0.44	%	—	2.86	%

Expected Term:    The expected term of options represents the period of time that options are expected to be outstanding. Our historical stock option exercise experience does not provide a reasonable basis upon which to estimate

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an expected term due to a lack of sufficient data. For granted "at-the-money" stock options, we estimate the expected term by using the simplified method permitted by the Securities and Exchange Commission. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options. For stock options that are not granted "at-the-money," we use the binomial lattice model to calculate the expected term. The binomial lattice model is a model for determining the expected term by utilizing a range of possible future outcomes.

Expected Volatility:    We derived the expected volatility from the average historical volatilities of comparable publicly traded companies within our peer group over a period approximately equal to the expected term.

Expected Dividend Rate:    We have not paid and do not anticipate paying any dividends in the near future.

Risk-Free Interest Rate:    The risk-free interest rate assumption is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U. S. Treasury notes with maturities approximately equal to the expected term.

Results of operations

Comparison of the years ended December 31, 2015, 2014 and 2013

	Year Ended
	December 31,						Changes
	2015		2014		2013		2015 - 2014		2014 - 2013
		(in thousands)
Revenues:
Product revenues	$	188,168	$	157,308	$	54,955	$	30,860	$	102,353
Other revenues		2,187		1,981		216		206		1,765
Total revenues		190,355		159,289		55,171		31,066		104,118
Cost and expenses:
Cost of product revenues		112,845		78,396		37,275		34,449		41,121
Research and development		27,711		17,292		11,550		10,419		5,742
Selling, general and administrative		109,637		62,936		31,614		46,701		31,322
Total cost and expenses		250,193		158,624		80,439		91,569		78,185
(Loss) gain from operations		(59,838)		665		(25,268)		(60,503)		25,933
Interest expense		(3,505)		(4,219)		(1,873)		714		(2,346)
Interest expense from accretion of convertible notes		—		—		(7,901)		—		7,901
Interest benefit (expense) from changes in the fair value of long-term debt		964		118		(2,166)		846		2,284
Other (expense) income , net		(7,896)		(1,716)		98		(6,180)		(1,814)
Net loss	$	(70,275)	$	(5,152)	$	(37,110)	$	(65,123)	$	31,958

Revenues

Revenues increased $31.1 million, or 19.5%, in the year ended December 31, 2015 from the year ended December 31, 2014. This was primarily due to the increase in volume of tests performed during the year. Approximately 84% of our revenues during the year ended December 31, 2015 were derived from test volumes accessioned in the year ended December 31, 2015; the balance of our revenues was derived from tests accessioned in prior years. Panorama revenue increased $23.5 million during the year ended December 31, 2015 compared to the year ended December 31, 2014 due to increased Panorama volumes, and revenues from non-Panorama products increased $7.6 million during the year ended December 31, 2015 compared to the year ended December 31, 2014.

Revenues increased $104.1 million, or 188.7%, in the year ended December 31, 2014 from the year ended December 31, 2013. This was primarily due to increased sales of Panorama, which was launched in March 2013. Approximately 93% of our revenues during the year ended December 31, 2014 were derived from test volumes

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accessioned in the year ended December 31, 2014; the balance of our revenues was derived from tests accessioned in prior years. Panorama revenue increased $85.2 million during the year ended December 31, 2014 compared to the year ended December 31, 2013 due to increased Panorama volumes, and revenues from non-Panorama products increased $18.9 million during the year ended December 31, 2014 compared to the year ended December 31, 2013.

During the year ended December 31, 2015, we accessioned greater than 310,000 tests, including greater than 254,000 Panorama tests and greater than 42,000 Horizon carrier screening tests. We recognized revenue on greater than 138,000 tests, including greater than 118,000 Panorama tests and greater than 12,600 Horizon carrier screening tests, in the year ended December 31, 2015. Eighty-four percent of the 138,000 tests, including 85% of the 118,000 Panorama tests and 75% of the 12,600 Horizon carrier screening tests, were accessioned in the year ended December 31, 2015, and the remainder were accessioned in prior years. During the year ended December 31, 2014, we accessioned greater than 215,000 tests, including greater than 185,000 Panorama tests and greater than 16,300 Horizon carrier screening tests. We recognized revenue on greater than 138,000 tests, including greater than 121,000 Panorama tests and greater than 7,600 Horizon carrier screening tests, in the year ended December 31, 2014. Ninety-three percent of the 138,000 tests, including 94% of the 121,000 Panorama tests and 86% of the 7,600 Horizon carrier screening tests, were accessioned in the year endedDecember 31, 2014, and the remainder were accessioned in prior years.  During the year ended December 31, 2013, we accessioned greater than 85,000 tests, including greater than 65,000 Panorama tests and greater than 6,000 Horizon carrier screening tests. We recognized revenue on greater than 58,000 tests, including greater than 45,000 Panorama tests and greater than 3,200 Horizon carrier screening tests, in the year ended December 31, 2013.  Ninety-seven percent of the 58,000 tests,  including 100% ofthe 45,000 Panoramatests and 82% of the 3,200 Horizon carrier screening tests, were accessioned in the year endedDecember 31, 2013, and the remainder were accessioned in prior years.

The number of tests we accession in a given period differs from the number of tests on which we recognize revenue in that period because we recognize revenue for certain tests upon cash receipt, which may occur a number of months after the test is accessioned; and in some cases, we do not ultimately receive reimbursement or payment for tests we accession. The vast majority of tests distributed through our direct sales force are billed to insurance payers and revenue is predominantly recognized on a cash basis as price is not fixed and determinable and collection is not reasonably assured. The decrease in the percentage of tests that are both accessioned and recognized as revenue within the same year in the year ended December 31, 2015 compared to the year ended December 31, 2014, as well as in the year ended December 31, 2014 compared to the year ended December 31, 2013, is related to theincreasing percentage of tests distributed through our direct sales force in eachyear. We also saw a decrease in the percentage of revenue recognized in the three months ended December 31, 2015 from tests accessioned in that period, compared to the three months ended September 30, 2015. Approximately 46% of revenue recognized in the three months ended December 31, 2015 was derived from test volumes accessioned in that quarter, compared to approximately 56% of revenue recognized in the three months ended September 30, 2015 that was derived from test volumes accessioned in that quarter. This decrease is primarily attributable to increased volumes of our Horizon carrier screening tests, as we are still in the process of integrating these tests into our billing infrastructure and therefore experience longer processing times for these tests; there was also a higher contribution to revenue from successful appeals of previously denied claims. 

Revenues from customers outside the United States were $25.4 million, $22.8 million and $6.9 million for the year ended December 31, 2015, 2014 and 2013, respectively.

Cost of product revenues

Cost of product revenues increased $34.4 million, or 43.9%, in the year ended December 31, 2015compared to the year ended December 31, 2014 primarily due to an increase in the volume of tests performed in the year combined with an increase in material and personnel costs, which are directly related to the growth in Panorama tests performed in theyear ended December 31, 2015. As a percentage of total revenues, cost of product revenues were59.3% for the year ended December 31, 2015compared to 49.2% for theyear endedDecember 31,  2014 in part due to increased cost per test related to expenses associated with our microdeletions panel, impairment of assets expected to be sold and increased proportion of Horizon carrier screening, which has a higher cost per test than Panorama. Also, we continued to drive Panorama volume growth in the average risk population, which is not yet broadly reimbursed.

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Cost of product revenues increased $41.1 million, or 110.3%,in the year ended December 31, 2014 compared to the year ended December 31, 2013 primarily due to an increase in the volume of tests performed in the year combined with an increase in material and personnel costs, which are directly related to the growth in Panorama tests performed in the year ended December 31, 2014. As a percentage of total revenues, cost of product revenues decreased to 49.2% for the year ended December 31, 2014from67.6% for theyear endedDecember 31,  2013.

We recorded an asset impairment charge of $1.0 million against a specific group of machinery and equipment during the year ended December 31, 2015. We no longer use this specific group of machinery and equipment because of outsourcing to our partners. The impairment charge was recorded to reflect reductions in the estimated realizable value of the machinery and equipment as a result of planning for its sale in the secondary market.We recorded the total impairment charge of $1.0 million in cost of product revenue. Wesold some of the impaired machinery and equipment during the fourth quarter of 2015 for $0.5 million and classified the remaining impaired machinery and equipment as held for sale at the estimated realizable value of $0.2 million.

Research and development

Research and development expenses increased $10.4 million, or 60.3%, in the year ended December 31, 2015 compared to the year ended December 31, 2014. The increase in research and development expenses was primarily attributable to a $6.5 million increase in salaries and personnel‑related costs associated with an increase in research and development headcount as well as a $1.9 million increase in outside services costs, a $1.1 million increase in laboratory expenses, and a $0.9 million increase in office, facilities and other expenses. We expect our research and development expenses will increase in absolute dollars in future periods as we continue to invest in research and development activities related to developing additional products. In the near term, we will continue to grow research and development expenses in support of Panorama and other new products and programs, including the application of our proprietary technologies for cancer and other disease detection.

Research and development expenses increased $5.7 million, or 49.7%,in the year ended December 31, 2014 compared to the yearended December 31, 2013. The increase in research and development expenses was primarily attributable to a $4.0 million increase in salaries and personnel‑related costs associated with an increase in research and development headcount as well as a $0.7 million increase in outside services costs, primarily related to consulting fees, a $0.3 million increase in laboratory expenses, and a $0.7 million increase in office, facilities and other expenses. We expect our research and development expenses will increase in absolute dollars in future periods as we continue to invest in research and development activities related to developing additional products. In the near term, we will continue to grow research and development expenses in support of Panorama and other new products and programs, including the application of our proprietary technologies for cancer and other disease detection.

Selling, general and administrative

Selling, general and administrative expenses increased $46.7 million, or 74.2%, in the year ended December 31, 2015 compared to the year ended December 31, 2014. The increase in selling, general and administrative expenses was primarily attributable to a $30.7 million increase in salaries and personnel‑related costs associated with an increase in sales and marketing personnel to support our growth in our direct sales model. Selling, general and administrative expenses reflects the net addition of 142 employees and contractors from December 31, 2014 to December 31, 2015. In addition, we experienced a $5.4 million increase in travel expenses and $2.1 million increase in outside services costs, primary related to insurance billing and legal fees. Marketing expenses increased $3.2 million, administrative and other expenses increased $2.1 million, office expenses increased $1.9 million, and facilities expenses increased $1.3 million. As we continue to grow as a public company, we expect our selling, general and administrative expenses to continue to increase.

Selling, general and administrative expenses increased $31.3 million, or 99.1%, in the year ended December 31, 2014 compared to the year ended December 31, 2013. The increase in selling, general and administrative expenses was primarily attributable to a $22.0 million increase in salaries and personnel-related costs associated with an increase in general and administrative personnel to support our growth in sales personnel related to our direct sales model. This includes a $2.3 million increase in stock-based compensation expense. Selling, general and administrative reflects the net

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addition of 115 employees from December 31, 2013 to December 31, 2014. In addition, we experienced a $2.5 million increase in expenses in our marketing, advertising and promotional event programs and travel primarily related to the expansion of marketing for Panorama. Travel expenses increased $3.1 million, administration and other expenses increased $1.4 million, office expenses increased $1.0 million, outside services increased $0.8 million, and facilities expenses increased $0.5 million.

Interest (expense)

Interest (expense)decreased $0.7 million,  in theyear ended December 31, 2015 compared to the year ended December 31, 2014 and was primarily comprised of interest expense related to the senior secured term loan and equipment financing facility.

Interest (expense)  increased $2.3 million,  in the year ended December 31, 2014 compared to the year ended December 31, 2013 and was primarily comprised of interest expense related to the senior secured term loan and equipment financing facility.

Interest expensefrom accretion of convertible notes

Interest expense from accretion of convertible notes decreased $7.9 million, in the year ended December 31, 2014 compared to the year ended December 31, 2013as our Series C and Series D convertible notes converted to preferred stock in February 2013.

Benefit from changes in the fair value of long-term debt

Benefit from changes in the fair value of long-term debt increased $0.8 millionin theyear ended December 31, 2015 compared to the year ended December 31, 2014 due to fair value measurement of the senior secured term loan for the year ended December 31, 2015. This term loan was entered into in April 2013 and repaid in October 2015.

Benefit from changes in the fair value of long-term debt increased $2.3 million in the year ended December 31, 2014 froman expense theyear ended December 31, 2013 due to fair value measurement of the senior secured term loan for the year ended December 31, 2014. This term loan was entered into in April 2013.

Other income (expense), net

Other income (expense), net increased $6.2 millionin the year ended December 31, 2015 compared to the year ended December 31, 2014 and was primarily related to the debt extinguishment expenses from the payoff of the senior secured loan.

Other expense,net increased $1.8 million from income in the year ended December 31, 2014 compared to the year ended December 31, 2013 and was primarily related to the fair value measurement of the outstanding warrants as of December 31, 2014.

Liquidity and Capital Resources

We have incurred net losses each year since our inception. For the years ended December 31, 2015, 2014 and 2013, we had net losses of $70.3 million, $5.2 million and $37.1 million, respectively, and we expect to incur additional losses in future years. As of December 31, 2015 and 2014, we had an accumulated deficit of $250.1 million and $179.8 million, respectively.

Until our IPO on July 1, 2015, we had  funded our operations primarily with the net proceeds from sales of our preferred stock and convertible promissory notes, borrowings under our senior secured term loan arrangement with ROS Acquisition Offshore LP, or ROS, our credit facilities with a commercial bank and revenues from operations. We also received $5.7 million of grant income from the National Institutes of Health. We had $28.9 million and $87.2 million of

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cash and cash equivalents, $1.6 million and $1.3 million of restricted cash as of December 31, 2015 and 2014, respectively. We had $201.6 million of investments as of December 31, 2015.

Initial Public Offering

In July 2015, we completed an initial public offering (“IPO”), and subsequently in August 2015, we completed the sale of additional shares upon exercise of the underwriters’ over-allotment option. In connection with the IPO, we sold 10,900,000 shares of common stock at $18.00 per share, which raised $178.5 million in proceeds, net of underwriting discounts, commissions, and offering expenses.

Series F Financing

In November and December 2014, we received $55.5 million in the aggregate from our sale of 4.3 million shares of Series F convertible preferred stock.

Senior Secured Term Loan

In April 2013, we entered into a senior secured term loan arrangement with ROS Acquisition, L. P.,  as amended June 6, 2014, which we refer to as the Secured Loan Arrangement for $40.0 million in aggregate borrowing capacity, of which we borrowed $20.0 million. The Secured Loan Arrangement consisted of a term loan, or Credit Agreement, a warrant to purchase 376,691 shares of common stock with an exercise price of $2.3229 per share (which expires in April 2023) and an agreement to pay royalties on our revenues, or Royalty Agreement.

Credit Line Agreement

In September 2015, we entered into the Credit Line with UBS providing for a $50.0 million revolving line of credit which can be drawn in increments at any time. In October 2015, we borrowed $32.0 million against the Credit Line, primarily to prepay all outstanding amounts under the Credit Agreement with ROS. The payment of $28.0 million to ROS included $20.0 million in principal, $2.0 million (10% of the outstanding principal) in prepayment penalty, and a $6.0 million (includes third quarter 2015 and payoff expense) royalty payment applied toward the royalty obligation. This terminated the loan, royalty and all associated liens securing the Credit Agreement. The Credit Line bears interest at one-month LIBOR plus 0.65%, and equaled approximately 0.84% per annum at the time of the draw. The Credit Line is secured by a first priority lien and security interest in our money market and marketable securities held in our managed investment account with UBS.

In November 2015, we borrowed an additional $10.0 million from the Credit Line to provide working capital at an interest rate of approximately 0.85% (one-month LIBOR plus 0.65%). This draw down increased the total principal amount outstanding under the Credit Line to $42 million. We accrued $0.1 million in interest on the $42.0 million Credit line during the year ended December 31, 2015.

Equipment Financing Facility

In November 2011, we entered into a loan and security agreement with Comerica Bank. We amended this agreement in January 2012, May 2012, January 2013, April 2013 and most recently in December 2014, or the Fifth Amendment. The loan and security agreement, as amended, or the Equipment Financing Facility, allowed us to borrow $5.9 million to fund equipment purchases. We paid interest on the unpaid principal at the financial institution's prime rate plus 3.10%, which equals 6.35%.

In September 2015, we paid off the remaining balance of the Equipment Financing Facility in the amount of $4.1 million comprising principal, interest and administrative fees and settling our obligations under the Equipment Financing Facility.

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Cash Flows

Our primary uses of cash are to fund our operations as we continue to grow our business. We expect to continue to incur operating losses in the future as our operating expenses increase to support the growth of our business. We expect that our research and development, and selling, general and administrative expenses will continue to increase as we expand our marketing efforts and support our internal sales force to drive increased adoption of and reimbursement for Panorama, continue our research and development efforts with respect to expanding Panorama's and Horizon's capabilities and further developing our product pipeline. Cash used to fund operating expenses is impacted by the timing of when we pay expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

Based on our current business plan, we believe that our existing cash and marketable securities will be sufficient to meet our anticipated cash requirements for at least the next 12 months. Management may elect, however, to finance operations by selling additional equity securities. If additional funding is required or desired, there can be no assurance that additional funds will be available to us on acceptable terms on a timely basis, if at all, or that we will generate sufficient cash from operations to adequately fund our operating needs or achieve or sustain profitability. If we are unable to raise additional capital or generate sufficient cash from operations to adequately fund our operations, we will need to curtail planned activities to reduce costs. Doing so will likely have an unfavorable effect on our ability to execute on our business plan. If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition, and results of operations could be adversely affected.

The following table summarizes our cash flows for the periods indicated:

	Year Ended
	December 31,
	2015		2014		2013
	(In thousands)
Cash (used in) provided by operating activities	$	(37,832)	$	10,490	$	(24,132)
Cash (used in) investing activities		(210,679)		(9,942)		(8,245)
Cash provided by financing activities		190,282		56,132		57,126
Net (decrease) increase in cash		(58,229)		56,680		24,749
Cash at beginning of year		87,176		30,496		5,747
Cash at end of year	$	28,947	$	87,176	$	30,496

Cash (Used in)Provided by Operating Activities

Cash (used in) operating activities for the year ended December 31, 2015 was $37.8 million. The net loss of $70.3 million reflects, cash charges of $7.3 million, non‑cash charges of $5.5 million of depreciation and amortization, $7.3 million of stock compensation expense and a $0.5 million charge from the change in the value of long‑term debt and warrants, $1.6 million impairment on assets, and other non‑cash charges of $0.9 million. The increase in operating assets of $2.6 million was primarily due to an increase in prepaid assets and other current assets of $3.8 million, an increase in accounts receivable of $0.5 million, and an increase in other assets and restricted cash of $1.3 million, offset by a decrease in inventory of $2.9 million. Operating liabilities increased by $12.0 million primarily driven by increases in accounts payable of $1.4 million, accrued compensation of $2.6 million, and other accrued liabilities of $8.0 million.

Cash provided by operating activities for the year ended December 31, 2014 was $10.5 million. Thenet loss of $5.2 million reflects non-cash charges of $5.1 million of depreciation and amortization,$5.2 million of stock compensation, a $1.7 million charge from the change in the value of warrants andother non-cash charges of $0.2 million. The increase in operating assets of $0.7 million was primarilydue to a $0.9 million increase in inventory to meet the material requirements for the sale of Panorama andan increase in prepaid assets of $0.1 million offset by a decrease in accounts receivable of $0.3 million.Operating liabilities increased by $4.1 million primarily driven by increases in accrued compensation of$3.0 million and other accrued liabilities of $4.4 million offset by decreases in accounts payables of$2.4 million and deferred revenue of $0.9 million.

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Cash used in operating activities for the year ended December 31, 2013 was $24.1 million. The net lossof $37.1 million reflects non-cash charges of $7.9 million related to the conversion of the Series C andSeries D Convertible Notes, $2.5 million of depreciation and amortization, $2.2 million change in fair valueof long-term debt and $1.7 million of stock-based compensation. The increase in operating assets of$15.3 million was primarily due to a $9.1 million increase in inventory to meet the material requirementsfor the sale of Panorama and a $5.3 million increase in accounts receivable due to increased revenues fromlaboratories and clinics ordering Panorama. Cash used in operating activities was offset by a $14.0 millionincrease in operating liabilities primarily driven by a $6.8 million increase in accounts payable, a$6.3 million increase in accrued liabilities and a $0.9 million increase in deferred revenues.

Cash (Used in) Investing Activities

Cash (used in) investing activities for the year ended December 31, 2015 was $210.7 million and was primarily related to $203.3 million of investments and the acquisition of $7.9 million of property and equipment, offset by proceeds from the sale of $0.5 million of property and equipment.

Cash (used in) investing activities for the year ended December 31, 2014 was $9.9 million and was primarily related to the acquisition of property and equipment.

Cash (used in) investing activities for the year ended December 31, 2013 was $8.2 million and was primarily related to the acquisition of property and equipment.

Cash Provided by Financing Activities

Cash provided by financing activities for the year ended December 31, 2015 was $190.3 million consisting primarily of proceeds from issuance of common stock and exercise of stock options, net of $180.0 million, proceeds from short-term debt of $42.0 million, proceeds from exercise of stock options of $1.3 million, proceeds from collection of officer receivable of $0.2 million, which were offset by debt extinguishment of $7.3 million, repayments of secured financing and the Equipment Financing Facility of $25.9 million.

For the year ended December 31, 2014, net cash provided by financing activities was $56.1 million, consisting of net proceeds from the issuance of preferred stock of $55.4 million, proceeds from the Equipment Financing Facility of $5.1 million, which was offset by $2.5 million in payments on the Equipment Financing Facility, $1.7 million in deferred offering costs, and restricted cash of $0.4 million.

Cash provided by financing activities for the year ended December 31, 2013 was $57.1 million andconsisted primarily of $35.4 million from the sale of Series E convertible preferred stock and bridge loan,$20.0 million from the Credit Agreement draw down, and $3.2 million in net proceeds from the EquipmentFinancing Facility. This was offset by issuance costs of $0.4 million in connection with the sale Series Econvertible preferred stock, $0.5 million in payments on the Equipment Financing Facility and a$0.9 million increase in restricted cash.

Contractual Obligations and Other Commitments

See “Liquidity and Capital Resources” for a description of our contractual obligations under the Credit Agreement, Royalty Agreement Credit Line and the Equipment Financing Facility.

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The following table summarizes our contractual obligations as of December 31, 2015:

	Payments Due by Period
			Less Than		1 to 3		3 to 5		More Than
	Total		1 Year		Years		Years		5 Years
	(In thousands)
Operating leases	$	52,996	$	3,212	$	11,418	$	12,444	$	25,922
Short-term debt(1)		42,000		42,000		—		—		—
Interest on short-term debt(2)		90		90		—		—		—
Inventory purchase obligations(3)		13,733		10,733		3,000		—		—
Total	$	108,819	$	56,035	$	14,418	$	12,444	$	25,922

(1) Represents proceeds drawn from our Credit Line.

(2) Represents our accrued interest as of December 31, 2015 on our Credit Line.

(3) Represents material open inventory purchase orders in the aggregate with suppliers as of December 31, 2015, including non-cancelable commitments with Illumina, Inc. for $12.2 million, for inventory material used in the laboratory testing process. This $12.2 million represents binding and future minimum purchase obligations with Illumina, Inc. through September 30, 2017.

The amounts in the table above do not include a purchase commitment entered into in January 2015 with a minimum of $5.1 million in connection with a laboratory services agreement which services are required to be rendered through October 2016.

Operating Lease Obligations

As of December 31, 2015, we sub‑lease office facilities under non‑cancelable operating lease agreements. In January 2013, we amended our sublease agreement to expand our corporate headquarters in San Carlos, California. In connection with the amendment, we executed a letter of credit in favor of the lessors for $0.8 million, which is secured with a restricted cash account. The related subleases expire in October 2016.

In March 2014, we entered into an additional sub‑lease agreement to expand our corporate headquarterswith additional office and laboratory space. In connection with the sub-lease, we executed a letter of credit in April 2015 in favor of the lessors for $0.3 million, which is secured with a restricted cash account. The lease and additional sub‑lease expires in January 2017.

In October 2015, we entered into a lease agreement for our corporate headquarters for the lease of two spaces totaling approximately 88,000 square feet through October 5, 2023. We currently occupy our corporate headquarters pursuant to two subleases with the current primary lessees. The lease agreement begins in October 2016 at a monthly rent of $0.2 million per month and increase each year thereafter to a maximum of $0.4 million in the final year of the initial term of the Lease. We are entitled to a tenant improvement allowance of $0.4 million, to be expended prior to April 1, 2018, for the costs related to the design and construction of improvements to the facilities. The terms of the lease include a $0.5 million security deposit, and the option to extend the lease for an additional five years per the terms of the lease agreement.

In April 2015, we entered into a sub-lease agreement for additional office space in Redwood City, California. The additional space carries a base rent of $0.1 million per month. The lease period began in June 2015 and will terminate in August 2016 with no option to extend the lease. In addition, we have paid a security deposit of $0.1 million.

In September 2015, our subsidiary entered into a long-term lease agreement for lab and office space in Austin, Texas. The lease term is 132 months beginning in December 2015 with monthly payments beginning in December 2016, increasing from $0.1 million to $0.2 million. Per the terms of the lease, the subsidiary has paid a security deposit of $0.4

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million, and the landlord has allotted the subsidiary a refundable allowance for leasehold improvements of up to $7.8 million and none has been drawn as of yearend. We may renew the lease for an additional five years per the terms of the lease agreement.

In October 2015, our subsidiary entered into a one year lease agreement for temporary office space in Austin, Texas. The property carries a monthly rent of $12,900 per month for the 12 months of the lease and $12,900 per month on a month to month basis following the 12th month. The terms of the lease include a $12,900 security deposit.

We amortize our leasehold improvements allowance over the entire life of the lease contract on a straight-line basis as an offset to monthly rent expense. Monthly rent expense is calculated by summing all of the rent payments over the life of the lease and calculating the monthly rent expense on a straight-line basis by dividing the sum of all payments over the life of the lease by the number of months in the lease contract. Monthly rent expense is then offset by the amortization of leasehold improvements allowance when applicable.

Inventory Purchase Obligations

As of December 31, 2015, we have non‑cancelable contractual commitments with Illumina, Inc. and other material suppliers for approximately $12.2 million and $1.5 million respectively,  for inventory material used in the laboratory testing process. This represents binding and future minimum purchase obligations through December 31, 2016.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

JOBS Act Accounting Election

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

ITEM 7A:QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  

Interest Rate Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rates. Our Credit Line has an interest rate of one-month LIBOR plus 0.65%. The LIBOR rate is variable. An incremental change in the borrowing rate of 100 basis points would increase our annual interest expense by $0.4 million based on our $42.1 million balance under the Credit Line including principal and accrued interest as of December 31, 2015.

Our investment portfolio is exposed to market risk from changes in interest rates. This risk is mitigated as we have maintained a relatively short average maturity for our investment portfolio. If a 100 basis point change in interest rates were to occur to our investments in 2016, our interest income would change by approximately $2.0 million annually in relation to amounts we would expect to earn, based on our cash, cash equivalents, and short-term investments as of December 31, 2015.

Foreign Currency Exchange Rate Fluctuations

Our operations are currently conducted primarily in the United States. As we expand internationally, our results of operations and cash flows may become subject to fluctuations due to changes in foreign currency exchange rates. In

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periods when the U.S. dollar declines in value as compared to the foreign currencies in which we incur expenses, our foreign‑currency based expenses will increase when translated into U.S. dollars. In addition, future fluctuations in the value of the U.S. dollar may affect the price at which we sell our tests outside the United States. To date, our foreign currency risk has been minimal and we have not historically hedged our foreign currency risk; however, we may consider doing so in the future.

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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NATERA, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page No.
Report of Independent Registered Public Accounting Firm	85
Consolidated Balance Sheets	86
Consolidated Statements of Operations and Comprehensive Loss	87
Consolidated Statements of Convertible Preferred Stock and Stockholder’s Equity (Deficit)	88
Consolidated Statements of Cash Flows	89
Notes to Consolidated Financial Statements	90

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Natera, Inc.

We have audited the accompanying consolidated balance sheets of Natera, Inc. as of December 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Natera, Inc. at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Redwood City, California

March 23, 2016

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PART I – FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

Natera, Inc.

Consolidated Balance Sheets

(In thousands, except per share data)

	December 31,		December 31,
	2015		2014
Assets
Current assets:
Cash and cash equivalents	$	28,947	$	87,176
Restricted cash, current portion		901		503
Short-term investments		201,586		—
Accounts receivable, net of allowance of $971 in 2015 and $527 in 2014		5,862		5,942
Inventory		8,093		11,542
Prepaid expenses and other current assets		5,337		1,314
Total current assets		250,726		106,477
Property and equipment, net		12,710		14,574
Restricted cash, long term portion		683		808
Other assets		1,121		1,764
Total assets	$	265,240	$	123,623
Liabilities, Convertible Preferred Stock, and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	7,332	$	8,867
Accrued compensation		8,552		5,980
Other accrued liabilities		18,708		10,341
Deferred revenue		144		112
Equipment loan, current portion		—		2,340
Short-term debt financing		42,090		—
Warrants		3,649		2,232
Total current liabilities		80,475		29,872
Equipment loan, long term portion		—		3,510
Senior secured term loan		—		20,964
Total long-term liabilities		—		24,474
Total liabilities		80,475		54,346
Commitments and contingencies (Note 6)
Convertible preferred stock, issuable in series, $0.0001 par value: 51,233 shares authorized at December 31, 2014, 31,397 shares issued and outstanding at December 31, 2014; aggregate liquidation preference of $133,757 at December 31, 2014		—		240,612
Stockholders’ equity (deficit):
Preferred stock, $0.0001 par value: 50,000 shares authorized; no shares issued and outstanding at December 31, 2015 and 2014, respectively		—		—
Common stock, $0.0001 par value: 750,000 and 82,000 shares authorized at December 31, 2015 and December 31, 2014, respectively, 50,346 and 6,879 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively		5		1
Additional paid in capital		436,259		8,664
Notes receivable from officers		—		(192)
Accumulated deficit		(250,083)		(179,808)
Accumulated other comprehensive loss		(1,416)		—
Total stockholders’ equity (deficit)		184,765		(171,335)
Total liabilities, convertible preferred stock, and stockholders’ equity (deficit)	$	265,240	$	123,623

See accompanying notes.

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Natera, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share data)

	Yearended December 31,
	2015		2014		2013
Revenues
Product revenues	$	188,168	$	157,308	$	54,955
Other revenues		2,187		1,981		216
Total revenues		190,355		159,289		55,171
Cost and expenses
Cost of product revenues		112,845		78,396		37,275
Research and development		27,711		17,292		11,550
Selling, general and administrative		109,637		62,936		31,614
Total cost and expenses		250,193		158,624		80,439
Gain (loss) from operations		(59,838)		665		(25,268)
Interest expense		(3,505)		(4,219)		(1,873)
Interest expense from accretion of convertible notes		—		—		(7,901)
Interest benefit (expense) from changes in the fair value of long term debt		964		118		(2,166)
Other (expense) income, net		(7,896)		(1,716)		98
Net (loss)	$	(70,275)	$	(5,152)	$	(37,110)
Unrealized loss on available-for-sale securities, net of tax		(1,416)		—		—
Comprehensive (loss)	$	(71,691)	$	(5,152)	$	(37,110)
Basic and diluted net loss per share	$	(2.68)	$	(1.07)	$	(9.66)
Weighted-average number of shares used in computing basic and diluted net loss per share		26,204		4,800		3,841

See accompanying notes.

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Natera, Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(In thousands, except per share data)

	Convertible  Preferred Stock			Common Stock			Additional Paid-in		Notes Receivable			Accumulated Other Comprehensive	Accumulated		Total Stockholders' Equity
(in thousands)	Shares	Amount		Shares	Amount		Capital		from Officers			Income (Loss)	Deficit		(Deficit)
Balance as of December 31, 2012	11,572	$	10,516	5,849	$	1	$	1,422	$	(192)	$	-	$	(137,546)	$	(136,315)
Issuance of Series C and D Preferred Stock upon conversion of notes payable and accrued interest	9,592		139,664	-		-		-		-		-		-		-
Issuance of Series E Convertible Preferred Stock at $6.02 per share net of issuance costs of $405,371	5,884		35,019	-		-				-		-		-		-
Issuance of common stock upon exercise of stock options	-		-	712		-		259		-		-		-		259
Stock-based compensation	-		-	-		-		1,657		-		-		-		1,657
Net loss	-		-	-		-		-		-		-		(37,110)		(37,110)
Balance as of December 31, 2013	27,048		185,199	6,561		1		3,338		(192)		-		(174,656)		(171,509)
Issuance of Series F Convertible Preferred Stock at $12.76 per share net of issuance costs of $86,933	4,349		55,413	-		-		-		-		-		-		-
Issuance of common stock upon exercise of stock options	-		-	318		-		169		-		-		-		169
Stock-based compensation	-		-	-		-		5,157		-		-		-		5,157
Net loss	-		-	-		-		-		-		-		(5,152)		(5,152)
Balance as of December 31, 2014	31,397		240,612	6,879		1		8,664		(192)		-		(179,808)		(171,335)
Issuance of common stock upon exercise of stock options	-		-	1,170		-		1,258		-		-		-		1,258
Stock-based compensation	-		-	-		-		7,326		-		-		-		7,326
Issuance costs of Series F Convertible Preferred Stock	-		(27)	-		-		-		-		-		-		-
Officer loan receivable repayment	-		-	-		-		-		192		-		-		192
Issuance of common stock in connection with the initial public offering	-		-	10,900		1		182,465		-		-		-		182,466
Issuance costs of initial public offering	-		-	-		-		(4,036)		-		-		-		(4,036)
Conversion of all Preferred Stock into Common Stock upon the completion of the initial public offering	(31,397)		(240,585)	31,397		3		240,582		-		-		-		240,585
Net loss	-		-	-		-		-		-		-		(70,275)		(70,275)
Accumulated other comprehensive income (loss)	-		-	-		-		-		-		(1,416)		-		(1,416)
Balance as of December 31, 2015	-	$	-	50,346	$	5	$	436,259	$	-	$	(1,416)	$	(250,083)	$	184,765

See accompanying notes.

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Natera, Inc.

Consolidated Statements of Cash Flows

(In thousands)

	Year Ended December 31,
	2015		2014		2013
Operating activities
Net loss	$	(70,275)	$	(5,152)	$	(37,110)
Adjustments to reconcile net loss to net cash used in operating activities:
Accretion of convertible notes		—		—		7,901
Non-cash interest		—		—		15
Depreciation and amortization		5,535		5,148		2,528
Amortization of debt discount		28		—		—
Amortization of premium on investment securities		288		—		—
Loss (gain) on sales of property and equipment		(2)		11		—
Impairment of assets		1,557		—		—
Stock-based compensation		7,326		5,157		1,657
(Gain)/loss from changes in fair value of warrants		1,481		1,664		(52)
(Gain)/loss from change in fair value of long term debt		(964)		(118)		2,166
Provision for doubtful accounts		529		349		527
Loss on debt extinguishment		7,313		—		—
Changes in operating assets and liabilities:
Accounts receivable		(450)		341		(5,848)
Inventory		2,929		(890)		(9,054)
Prepaid expenses and other current assets		(3,797)		(137)		(820)
Restricted cash		(273)		—		—
Other assets		(1,041)		(24)		(63)
Accounts payable		1,354		(2,430)		6,792
Income taxes payable		—		(15)		—
Accrued compensation		2,572		2,994		1,658
Other accrued liabilities		8,026		4,450		4,702
Deferred revenue		32		(858)		869
Net cash (used in) provided by operating activities		(37,832)		10,490		(24,132)
Investing activities
Purchases of investments		(203,290)		—		—
Proceeds from sale of property and equipment		463		15		—
Purchases of property and equipment, net		(7,852)		(9,957)		(8,245)
Net cash (used in) investing activities		(210,679)		(9,942)		(8,245)
Financing activities
Proceeds from issuance of common stock, net of issuance costs		180,001		170		259
Proceeds from exercise of stock options		1,258		—		—
Bridge loan		—		—		2,000
Proceeds from issuance of preferred stock, net		—		55,413		33,019
Proceeds from senior secured term loan		—		—		20,000
Costs paid for loan		(6)		—		(479)
Proceeds from short-term financing		42,000		—		—
Proceeds from equipment financing		—		5,105		3,700
Repayments of equipment financing		(5,850)		(2,480)		(475)
Repayments of secured financings		(20,000)		—		—
Proceeds from collection of officer receivable		192		—		—
Payment to lender for debt extinguishment		(7,313)		—		—
Change in restricted cash		—		(415)		(881)
Deferred offering costs		—		(1,661)		(17)
Net cash provided by financing activities		190,282		56,132		57,126
Net (decrease) increase in cash		(58,229)		56,680		24,749
Cash at beginning of period		87,176		30,496		5,747
Cash at end of period	$	28,947	$	87,176	$	30,496
Supplemental disclosure of cash flow information:
Cash paid for interest	$	2,060	$	2,063	$	920
Purchases of property and equipment through accounts payable and accruals	$	765	$	3,223	$	2,942
Non-cash property and equipment purchase	$	2	$	—	$	—
Conversion of C and D notes	$	—	$	—	$	139,664
Conversion of bridge loan	$	—	$	—	$	2,002
Conversion of convertible preferred stock to common stock	$	240,585	$	—	$	—

See accompanying notes.

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Natera, Inc.

Notes to Consolidated Financial Statements

1. Description of Business

Natera, Inc. (the "Company") was formed in the state of California as Gene Security Network, LLC in November 2003 and incorporated in the state of Delaware in January 2007. The Company’s mission is to change the management of genetic disease worldwide. The Company operates a laboratory certified under the Clinical Laboratory Improvement Amendments ("CLIA") providing a host of preconception and prenatal genetic testing services. The Company operates in one segment and has a subsidiary that operates in the state of Texas.

The Company's product offerings include its Panorama Non-Invasive Prenatal Test ("NIPT") that screens for chromosomal abnormalities of a fetus typically with a blood draw from the mother; Horizon Carrier Screening ("Horizon") to determine carrier status for a large number of severe genetic diseases that could be passed on to the carrier’s children; Spectrum Pre-implantation Genetic Screening ("PGS") and Spectrum Pre-implantation Genetic Diagnosis ("PGD") to analyze chromosomal anomalies or inherited genetic conditions during an in vitro fertilization ("IVF") cycle to select embryos with the highest probability of becoming healthy children; Anora Products of Conception ("POC") test to rapidly and extensively analyze fetal chromosomes to understand the cause of miscarriage; Non-Invasive Paternity Testing ("PAT"), to determine paternity by analyzing the fragments of fetal deoxyribonucleic acid ("DNA") in a pregnant mother's blood and a blood sample from the alleged father(s), which is marketed and sold exclusively by a licenseefrom whom the Company receives a royalty. All testing is available principally in the United States and Europe. The Company also offers Constellation, a cloud-based software product that allows laboratory customers to gain access through the cloud to the Company’s algorithms and bioinformatics in order to validate and launch tests based on the Company’s technology.

Reverse Stock Split

The Company's board of directors and stockholders approved a 1-for-1.63 reverse split of its capital stock, which was effected on June 19, 2015. All references to common stock, options to purchase common stock, restricted stock, share data, per share data, warrants, convertible preferred stock and related information have been retroactively adjusted where applicable in this report to reflect the reverse stock split of the Company's capital stock as if it had occurred at the beginning of the earliest period presented.

Initial Public Offering

In July 2015, the Company completed an initial public offering (“IPO”), and subsequently in August 2015, the Company completed the sale of additional shares upon exercise of the underwriters’ over-allotment option. In connection with the IPO, including the over-allotment option, the Company sold 10,900,000 shares of common stock at $18.00 per share, which raised $178.5 million in proceeds, net of underwriting discounts and commissions and offering expenses.

2.    Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). .

Need to Raise Additional Capital

The Company has incurred net losses since its inception and anticipates net losses and negative operating cash flows for the near future. For the year ended December 31, 2015, the Company had a net loss of $70.3 million, and as of December 31, 2015, it had an accumulated deficit of $250.1 million. At December 31, 2015, the Company had $28.9 million in cash and cash equivalents and $201.6 million in marketable securities. While the Company has introduced

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multiple products that are generating revenues, these revenues have not been sufficient to fund all operations. Accordingly, the Company has funded the portion of operating costs that exceeds revenues through a combination of equity issuances, debt issuances, and other financings. The Company expects to develop and commercialize future products and, consequently, it will need to generate additional revenues to achieve future profitability and may need to raise additional equity or debt financing that may not be available, if at all, at terms acceptable to the Company to fund future operations. Based on our current business plan, we believe that our existing cash and marketable securities will be sufficient to meet our anticipated cash requirements for the next 12 months.

Principles of Consolidation

The accompanying condensed consolidated financial statements include all the accounts of the Company and its subsidiary. The Company established a subsidiary that operates in the state of Texas in December 2014 to support the Company’s laboratory and operational functions, which became active in the second quarter of 2015. All intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions about future events that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Significant items subject to such estimates include the allowance for doubtful accounts, accrued liability for potential refund requests, stock-based compensation, the fair value of common stock and fair value of debt accounted for under ASC 815, as well as income tax uncertainties. These estimates and assumptions are based on management's best estimates and judgment. Management regularly evaluates its estimates and assumptions using historical experience and other factors; however, actual results could differ from these estimates and could have an adverse effect on the Company's financial statements.

Fair Value

The Company discloses the fair value of financial instruments for financial assets and liabilities for which the value is practicable to estimate. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company carried senior secured term loan and warrants at fair value according to the fair value measurement guidance.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and money market deposits with financial institutions.

Restricted Cash

The Company discloses both short-term and long-term restricted cash.  Short-term restricted cash consists of $0.8 million, securing our letter of credit for our headquarters operating lease which expires in October 2016 and $0.1 million in payments received by certain customers.  Long-term restricted cash consists of $0.4 million deposit per credit card terms and $0.3 million securing our letter of credit for our headquarters operating lease which expires in January 2017.

Investments

Management determines the appropriate classification of securities at the time of purchase and reevaluates such determination at each balance sheet date. The Company generally classifies its entire investment portfolio as available-for-sale. The Company views its available-for-sale portfolio as available for use in current operations. Accordingly, the Company classifies all investments as short-term, even though the stated maturity may be more than one year from the current balance sheet date. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), which is a separate component of stockholders’ equity (deficit).

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Risk and Uncertainties

Financial instruments that potentially subject the Company to credit risk consist of cash, accounts receivable and investments. The Company limits its exposure to credit loss by placing its cash in financial institutions with high credit ratings. The Company's cash may consist of deposits held with banks that may at times exceed federally insured limits. The Company performs evaluations of the relative credit standing of these financial institutions and limits the amount of credit exposure with any one institution.

The Company bills third-party payers for certain tests performed. The amount that is ultimately received from the payer for our claim and the timing of such payments are subject to the determination of the payer based on the nature of the test performed and their view of our business practices with respect to collections of plan deductibles and co-payments from patients and other activities. This determination can impact both the amount and timing of when our invoices are collected. Payers may also withhold payments and request refunds of prior payments if we do not perform in accordance with the policies of these payers.

The Company performs evaluations of financial conditions for clinics and laboratory partners and generally does not require collateral to support credit sales. For 2015 and 2014, there were no customers exceeding 10% in total revenue. For 2013, two customers accounted for more than 10% of our revenues: Quest Diagnostics Incorporated (16%) and Progenity, Inc. (12%). As of December 31, 2015 and 2014, no customers had a receivable balance greater than 10% of net accounts receivable, and as of December 31, 2013, two customers had receivable balances of 37% and 18% of total accounts receivable.

Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the amount billed to the laboratory partners and clinics. Reducing this amount is an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make the contracted payments. Management analyzes accounts receivable and historical bad debt experience, customer creditworthiness, current economic trends, and changes in customer payment history when evaluating the adequacy of the allowance for doubtful accounts. Accounts receivable are written off against the allowance when there is substantive evidence that the account will not be paid.

Revenue Recognition

The Company generally bills an insurance carrier, a clinic or a patient for the test upon delivery of the test result. The Company also bills patients directly for out-of-pocket costs not covered by their insurance carriers representing co-pays and deductibles in accordance with their insurance carrier and health plans. The Company may not get reimbursed for tests completed if the tests are not covered under the insurance carrier’s reimbursement policies or the Company is not a qualified provider to the insurance carrier. For tests performed, where an agreed upon reimbursement rate or fixed fee and a predictable history or likelihood of collections exists, the Company recognizes revenues upon delivery of the test report to the prescribing physician based on the established billing rate less contractual and other adjustments, such as an allowance for doubtful accounts, to arrive at the amount that the Company expects to collect. In all other situations, as the Company does not have a sufficient history of collection and is not able to determine collectability, the Company recognizes revenues when cash is received. From time to time, we receive requests for refunds of payments previously made by insurance carriers. The Company has established an accrued liability for potential refund requests based on our experience.

In cases where the Company sells its tests through its laboratory partners, the majority of the laboratory partners bill the patient, clinic, or insurance carrier for the performance of the Company's tests.

For tests sold through a limited number of its laboratory partners, the Company bills directly to a patient, clinic or insurance carrier, or a combination of the insurance carrier and patient for the fees. The Company considers its services rendered when it delivers reports of its test results to the laboratory partner, clinic or patient. When the Company has contracted fixed rates for its services and collectability of its revenues is reasonably assured, it recognizes revenues upon delivery of test reports. The fixed fees identified in contracts with laboratory partners change only if a pricing amendment

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is agreed upon between both parties. For cases in which there is no fixed price established with a laboratory partner, the Company then recognizes revenues from partner distributed tests on a cash basis.

Certain of the Company's arrangements include multiple deliverables. For revenue arrangements with multiple deliverables, the Company evaluates each deliverable to determine whether it qualifies as a separate unit of accounting. This determination is based on whether the deliverable has "stand-alone value" to the customer and whether a general right of return exists. The consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling price of each deliverable. The consideration allocated to each unit of accounting is recognized as the related goods or services are delivered, limited to the consideration that is not contingent upon future deliverables. The Company uses judgment in identifying the deliverables in its arrangements, assessing whether each deliverable is a separate unit of accounting, and in determining the best estimate of selling price for certain deliverables. The Company also uses judgment in determining the period over which the deliverables are recognized in certain of its arrangements. Any amounts received that do not meet the criteria for revenue recognition are recorded as deferred revenue until such criteria are met.

The Company receives royalty revenue through the licensing and the provisioning of services to support the use of the Company's proprietary technology with its customer. Royalty revenues are recognized when earned under the terms of the related agreements and are included in Other Revenues in the statements of operations.

The Company recognizes revenue from the cloud-based distribution service offering. The Company grants customers licenses to use the Company’s proprietary intellectual properties and the cloud-based Natera software, and provides the other services to support the use of the Company's proprietary technology with its customers. Natera’s proprietary software is used in connection with the analysis of DNA sequence data in a manner yielding a result indicating the likely presence or absence of full or partial chromosomal abnormalities. The licensees do not have the right to possess Natera software, but rather are treated as software as a service. The revenues are recognized on an accrual basis (assuming all revenue recognition criteria are met) under the terms of the related agreements and are included in other revenues in the statements of operation.

Cost of Product Revenues

Cost of product revenues includes the cost of materials, direct labor of laboratory personnel, equipment and infrastructure expenses associated with processing blood and other samples, quality control analyses, and shipping charges to transport samples and specimens from ordering physicians, clinics or individuals. Infrastructure expenses include allocated facility and related occupancy costs. Costs associated with the performance of diagnostic services are recorded as tests are processed. Costs associated with grants received are reported in research and development expenses.

Research and Development

The Company records research and development costs in the period incurred. Research and development costs consist of personnel costs, contract services, cost of materials utilized in performing tests, costs of clinical trials and allocated facilities and related overhead expenses.

Advertising Costs

The Company expenses advertising costs as incurred. The Company incurred advertising costs of $1.1 million, $1.1 million and $0.4 million during 2015, 2014 and 2013, respectively.

Product Shipment Costs

The Company expenses product shipment costs in cost of product revenues in the accompanying statements of operations. Shipping and handling costs for the years ended December 31, 2015, 2014 and 2013 were $7.0 million, $4.5 million and $2.0 million, respectively.

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Income Taxes

Income taxes are recorded in accordance with Financial Accounting Standards Board ASC Topic 740, Income Taxes ("ASC 740"), which provides for deferred taxes using an asset and liability approach. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Tax benefits are recognized when it is more likely than not that a tax position will be sustained during an audit. Deferred tax assets are reduced by a valuation allowance if current evidence indicates that it is considered more likely than not that these benefits will not be realized.

Stock‑Based Compensation

Stock‑based compensation related to stock options granted to the Company’s employees is measured at the grant date based on the fair value of the award. The fair value is recognized as expense over the requisite service period, which is generally the vesting period of the respective awards. No compensation cost is recognized on stock options for employees who do not render the requisite service and therefore forfeit their rights to the stock options. The Company uses the Black‑Scholes option‑pricing model to estimate the fair value of its stock options.

The Company accounts for stock options issued to non-employees based on the estimated fair value of the awards using the Black-Scholes option-pricing model. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest, and the resulting change in value, if any, is recognized in the Company's statements of operations during the period that the related services are rendered.

The Black-Scholes option-pricing model requires the input of the Company's expected stock price volatility, the expected life of the awards, a risk-free interest rate, and expected dividends. Determining these assumptions requires significant judgment. The expected term was based on the simplified method and where the Company did not qualify to use the simplified method, the Company used the lattice model, and the volatility rate was based on that of publicly traded companies in the DNA sequencing, diagnostics, or personalized medicine industries. When selecting the public companies in these industries to be used in the volatility calculation, companies were selected with comparable characteristics to the Company, including enterprise value and financial leverage. Companies were also selected with historical share price volatility sufficient to meet the expected life of the Company's stock options. The historical volatility data was computed using the daily closing prices for the selected companies' shares during the equivalent period of the calculated expected term of the Company's stock options. The expected life of the non-employee option grants was based on their remaining contractual life at the measurement date. The risk-free interest rate assumption was based on U.S. Treasury instruments with maturities that were consistent with the option's expected life. The expected dividend assumption was based on the Company's history and expectation of dividend payouts.

Warrants

The Company accounts for warrants to purchase shares of its common stock as a liability at fair value on the balance sheet date because the Company may be obligated to redeem these warrants at some point in the future. The warrants are subject to remeasurement at each balance sheet date, with changes in fair value recognized as a gain or loss from the changes in fair value of the warrants in the statements of operations. The Company will continue to adjust the liability for changes in fair value until such time that the warrants are converted or expire.

Capitalized Software Held for Internal Use

We capitalize costs of software held for internal use during the application development stage of a project and amortize those costs over their estimated useful lives of three years. The net book value of capitalized software held for internal use was $0.8 million and $0 as of December 31, 2015 and 2014, respectively.Amortized expense for amounts previously capitalized for the year ended December 31, 2015 was $0.2 million.

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Accumulated Other Comprehensive Loss

Comprehensive loss and its components encompass all changes in equity other than those with stockholders, and include net loss, unrealized gains and losses on available-for-sale marketable securities. As of December 31, 2015 and 2014, accumulated other comprehensive loss consisted of $1.4 million and nil of unrealized losses on available-for-sale marketable securities. There were no reclassifications out of accumulated other comprehensive loss during years ended December 31, 2015 and 2014.

Property and Equipment

Property and equipment, including purchased and internally developed software, are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which are generally three years. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the assets or the remaining term of the lease, whichever is shorter. The Company periodically reviews the depreciable lives assigned to property and equipment placed in service and change the estimates of useful lives to reflect the results of such reviews. During April 2015, the Company increased the depreciable lives of certain sequencing and automation machinery equipment from three years to five years. The effect of this change in estimate for the year ended December 31, 2015 was a decrease in loss from operations and net loss of  $1.7 million, respectively. The effect of this change in estimate was a decrease in net basic and diluted loss per share of $0.07 for the year ended December 31, 2015.

Inventory

Inventory is valued at the lower of the standard cost, which approximates actual cost, or market. Cost is determined using the first-in, first-out ("FIFO") method. Inventory consisted entirely of supplies, which are consumed when providing its test reports, and therefore does not maintain any finished goods inventory. The Company enters into inventory purchases and commitments so that it can meet future delivery schedules based on forecasted demand for its tests.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed below, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

In August 2014, FASB issued Accounting Standards Update No. 2014‑15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014‑15). ASU 2014‑15 requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. In doing so, companies will have reduced diversity in the timing and content of footnote disclosures compared to footnote disclosures under today’s guidance. ASU 2014‑15 is effective for the Company in the first quarter of 2016 with early adoption permitted. The Company does not believe the impact of adopting ASU 2014‑15 on its financial statements will be significant.

In May 2014, FASB issued Accounting Standards Update No. 2014‑09, Revenue from Contracts with Customers (ASU 2014‑09) to provide guidance on revenue recognition. ASU 2014‑09 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09 for all entities by one year. ASU 2014-09 is effective for the Company in the first quarter of 2018. ASU 2014-09, as amended by ASU 2015-14, is effective for the Company in the fiscal year beginning after December 15, 2017, and interim periods within those years with early adoption permitted up to the first quarter of 2017. Upon adoption, ASU 2014‑09 can be applied retrospectively to all periods presented or only to the most current period presented with the

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cumulative effect of changes reflected in the opening balance of retained earnings in the most current period presented. The Company is currently evaluating the impact of adopting ASU 2014‑09 on its financial statements.

In April 2015, FASB issued Accounting Standards Update No. 2015‑03, Interest—Imputation of Interest (Subtopic 835‑30): Simplifying the Presentation of Debt Issuance Costs (ASU 2015‑03). ASU 2015‑03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015‑03 is effective for the Company in the first quarter of 2016 with early adoption permitted. The Company does not believe the impact of adopting ASU 2015‑03 on its financial statements will be significant.

In April 2015, FASB issued Accounting Standards Update No. 2015‑05, Intangibles—Goodwill and Other—Internal‑Use Software (Subtopic 350‑40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (ASU 2015‑05). ASU 2015‑05 provides guidance to clarify the customer’s accounting for fees paid in a cloud computing arrangement. ASU 2015‑05 is effective for the Company in the first quarter of 2016 with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2015‑05 on its financial statements.

In July 2015, FASB issued Accounting Standards Update No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (ASU 2015-11). ASU 2015-11 simplifies the subsequent measurement of inventory by replacing today’s lower of cost or market test with a lower of cost and net realizable value test. ASU 2015-11 is effective for the Company in the fiscal year beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2015‑11 on its financial statements.

In November 2015, FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred taxes by requiring that deferred tax assets and liabilities be presented as noncurrent on the balance sheet. ASU 2015-17 is effective for the Company in the fiscal year beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2015‑17 on its financial statements.

In February 2016, the FASB issued ASU No. 2016-2, Leases. ASU 2016-2 is aimed at making leasing activities more transparent and comparable, and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. ASU 2016-2 is effective for the Company in the fiscal year beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2016-2 on its financial statements.

3.   Fair Value Measurements

The Company's financial assets and liabilities carried at fair value are comprised of investment assets that include money market and investments, a liability for convertible preferred stock warrants and a liability for common stock warrants.  The Company’s Credit Line described in Note 8, is not measured at fair value on a recurring basis and is carried at amortized cost. The Company believes that the fair value of the Credit Line approximates its carrying value or amortized costs, due to the short-term nature of this obligation and the interest rate relative to market rates.

The fair value accounting guidance requires that assets and liabilities be carried at fair value and classified in one of the following three categories:

Level I: Quoted prices in active markets for identical assets and liabilities that the Company has the ability to access

Level II: Observable market‑based inputs or unobservable inputs that are corroborated by market data, such as quoted prices, interest rates, and yield curves

Level III: Inputs that are unobservable data points that are not corroborated by market data.

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This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. There were notransfersbetweenLevel I, Level II and Level IIIduringtheperiods presented.

Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis

The following table represents the fair value hierarchy for the Company’s financial assets and financial liabilities measured at fair value on a recurring basis:

	December 31, 2015								December 31, 2014
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
	(in thousands)
Financial Assets:
Money market deposits	$	5,966	$	—	$	—	$	5,966	$	—	$	—	$	—	$	—
U.S. Treasury securities		103,813		—		—		103,813		—		—		—		—
U.S. agency securities		—		78,853		—		78,853		—		—		—		—
Municipal securities		—		18,920		—		18,920
Total financial assets	$	109,779	$	97,773	$	—	$	207,552	$	—	$	—	$	—	$	—
Current Liabilities:
Warrants	$	—	$	—	$	3,649	$	3,649	$	—	$	—	$	2,232	$	2,232
Long-term Liabilities:
Senior secured term loan	$	—	$	—	$	—	$	—	$	—	$	—	$	20,964	$	20,964
Total financial liabilities	$	—	$	—	$	3,649	$	3,649	$	—	$	—	$	23,196	$	23,196

The Company's warrants to purchase common stock are valued using Level III inputs; the Company used inputs from a Black-Scholes model with market volatility that is determined for comparable companies in the same business sector. The carrying amounts of cash, accounts receivable, and accounts payable approximate their fair value and are excluded from the table above.

In April 2013, the Company entered into a senior secured term loan with a third‑party lender, which consisted of a credit agreement, royalty agreement, warrants, and loan commitment. The Company considered the guidance under ASC 825‑10, Financial Instruments, which provides a measurement basis election for most financial instruments (i.e., either historical cost or fair value), allowing reporting entities to mitigate potential mismatches that arise under the current mixed measurement attribute model and ASC 820, Fair Value Measurements and Disclosures that provides for the fair value measurement of assets and liabilities, except for derivatives, for which the fair value is determined by ASC 815, Derivatives and Hedging.

The Company evaluated the components of the senior secured term loan and determined that they were derivatives to be evaluated under ASC 815‑15‑25‑1. The fair value accounting for derivatives is not an option, as derivatives must be fair valued under ASC 815 following the measurement guidance under ASC 820. Therefore, the Company engaged a third party to determine the fair value of the derivatives using the guidance of ASC 820 and recorded the Senior Secured Term Loan at fair value.

ASC 815 requires the terms and features of an instrument that are not a derivative itself to be evaluated for embedded derivatives that must be bifurcated and separately accounted for as freestanding derivatives. In general, under ASC 815‑15‑25‑1, an embedded derivative is separated from the host contract and accounted for as a derivative instrument if and only if the following criteria are met:

· Economic characteristics/risks of the derivative are not clearly and closely related to host;

· The hybrid instrument is not re‑measured at fair value under other applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur;

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· A separate instrument with the same terms would be considered a derivative: (i) one or more underlying, (ii) One or more notional amounts, (iii) no or minimal initial net investment, (iv) net settlement.

Based upon the Company's evaluation, the senior secured term loan constituted a liability with embedded derivative features that must be accounted for separately as mark-to-market instruments. In addition, adjustments to the embedded royalty feature were recorded as interest expense as they occurred, offset to the carrying amount of the debt (with the eventual cash outlay to settle such amounts recorded against the carrying amount of the debt). Based on the Company's evaluation, it was determined that the warrants granted were detachable and therefore a stand-alone component of the senior secured term loan which was to be fair valued using Level III inputs as a separate derivative. Additionally, it was determined that the remaining components were embedded derivatives of the senior secured term loan, which required a fair value assessment using Level III inputs at the end of each reporting period. The Company's independent appraiser assisted in the evaluation of the components of the senior secured term loan that required significant judgment or estimation. The fair value of the components were calculated using various techniques such as (i) discounted future cash flows, (ii) the income approach, using various revenue assumptions and applying a Monte-Carlo Simulation to each outcome and (iii) Black-Scholes Option Pricing Model with market volatility that was determined by comparison to comparable companies in the same business sector. The fair value of the senior secured term loan was re-measured at the end of each reporting period with the change in fair value recorded within non-operating expense in the statements of operations until it was repaid in October 2015.

The following table provides a roll forward of the fair value, as determined by Level III inputs, of the warrants for the years ended December 31, 2015 and 2014:

	Warrants
	2015		2014
	(in thousands)
Beginning balance	$	2,232	$	568
Warrants exercised		(240)		—
Change in fair value		1,657		1,664
Ending balance	$	3,649	$	2,232

The following table provides a roll forward of the fair value, as determined by Level III inputs, of the senior secured term loan for the years ended December 31, 2015 and 2014:

	Term Loan
	2015		2014
	(in thousands)
Beginning balance	$	20,964	$	21,082
Change in fair value recognized in non-operating expense		(964)		(118)
Loan payment		(20,000)		—
Ending balance	$	—	$	20,964

The early payment of the senior secured term loan included a prepayment penalty of $2.0 million and $5.3 million royalty payoff.

The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurement classified in Level III of the fair value hierarchy at December 31, 2015.

					Weighted Average
					Interest on
	Fair Value at			Significant	Discount Rate
	December 31, 2015		Valuation Methodology	Unobservable Input	(range, if applicable)
	(in thousands)				(in thousands)
—Warrants	$	3,649	Black-Scholes Option Pricing Model	Volatility		79.6	%

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Senior Secured Term Loan

The fair value of the liability represented a term loan, royalty interest, and a loan commitment that was based upon the achievement of certain revenue targets over the life of the contract. The fair value of the liability was determined using discounted cash flow methodology, a Monte Carlo Simulation model for projected revenues, and the Longstaff-Schwartz model for royalty payments with significant inputs that include discount rate, projected revenues, projected royalty payments and percentage probability of occurrence for projected revenues and royalty payments.

Warrants

The significant unobservable inputs used in the fair value of warrants are derived from the Company's common stock valuation that is based upon a model with inputs from a Black-Scholes model and market volatility that is determined for comparable companies in the same business sector. The inherent risk in the market volatility is the selection of companies with similar business attributes to the Company. The Company changed the volatility assumption from a group of 15 companies that was shared with the secured debt volatility prior periods to a group of four companies that is shared with the volatility used for stock-based compensation expense.  The Company determined this was appropriate as the secured debt was settled in October 2015 and results in consistent volatility assumptions used for both common stock warrants and stock-based compensation. This resulted in an increase of the Company’s warrant valuation of $0.2 million on December 31, 2015.

4.Financial Instruments

The Company elected to invest a portion of its cash assets in conservative, income earning, liquid investments effective September 2015. Cash equivalents and investments, all of which are classified as available-for-sale securities, consisted of the following:

	December 31, 2015								December 31, 2014
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized (Loss)		Estimated Fair Value		Amortized Cost		Gross Unrealized Gain		Gross Unrealized (Loss)		Estimated Fair Value
	(in thousands)
Money market deposits	$	5,966	$	—	$	—	$	5,966	$	—	$	—	$	—	$	—
U.S. Treasury securities		104,537		1		(725)		103,813		—		—		—		—
U.S. agency securities		79,491		—		(638)		78,853		—		—		—		—
Municipal securities		18,974		2		(56)		18,920
Total	$	208,968	$	3	$	(1,419)	$	207,552	$	—	$	—	$	—	$	—
Classified as:
Cash equivalents							$	5,966							$	—
Short-term investments								201,586								—
Total							$	207,552							$	—

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The Company invests in U.S. Treasuries, U.S. agency and high quality municipal bonds which mature at par and are all paying their coupons on schedule.  Thus the Company has determined there is currently no other than temporary impairment of our investments, and will continue to recognize unrealized losses and gains in other comprehensive income. As of December 31, 2015, the Company has 73 investments in an unrealized loss position in its portfolio. The Company earned interest income of $0.3 million during the year ended December 31, 2015. The following table summarizes the Company’s portfolio of available-for-sale securities by contractual maturity as of December 31, 2015:

	December 31, 2015
	Amortized Cost		Fair Value
	(in thousands)
Less than one year	$	55,128	$	55,010
Greater than one year but less than five years		153,840		152,542
Total	$	208,968	$	207,552

5. Balance Sheet Components

Allowance for Doubtful Accounts

The following table presents a reconciliation of the allowance for doubtful accounts:

	December 31,		December 31,
	2015		2014
	(in thousands)
Beginning balance	$	527	$	508
Provision for estimated bad debts		529		349
Write offs		(85)		(330)
Ending balance	$	971	$	527

Property and Equipment, net

The Company’s property and equipment consisted of the following:

		December 31,		December 31,
	Useful Life	2015		2014
		(in thousands)
Machinery and equipment	3-5 years	$	20,670	$	18,632
Furniture and fixtures	3 years		217		217
Computer equipment	3 years		911		700
Capitalized software held for internal use	3 years		1,037		—
Leasehold improvements	Life of lease		1,686		1,036
Construction-in-process			1,979		3,583
			26,500		24,168
Less: Accumulated depreciation and amortization			(13,790)		(9,594)
Total Property and Equipment, net		$	12,710	$	14,574

All of the Company’s long-lived assets are located in the United States.

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In September 2015, the Company paid off the Equipment Financing Facility, thus none of the Company's equipment is subject to pledge.

The Company periodically evaluates the carrying value of long-lived assets when events or circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the estimated realizable value of the asset is less than the carrying value of the asset.  In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset.  Fair value is determined based on the estimated realizable value of the long-lived asset.

The Company recorded an asset impairment charge of $1.0 million against a specific group of machinery and equipment during the year ended December 31, 2015. The Company no longer uses this specific group of machinery and equipment because of outsourcing to its partners. The impairment charge was recorded to reflect reductions in the estimated realizable value of the machinery and equipment as a result of planning for its sale in the secondary market. The Company recorded the total impairment charge of $1.0 million in cost of product revenue.  The Company sold some of the impaired machinery and equipment during the fourth quarter of 2015 for $0.5 million and classified the remaining impaired machinery and equipment as held for sale at the estimated realizable value of $0.2 million. The remaining impaired machinery was sold in January 2016 for $0.2 million.

Accrued Compensation

The Company’s accrued compensation consisted of the following:

	December 31,		December 31,
	2015		2014
	(in thousands)
Accrued paid time off	$	2,024	$	1,577
Accrued commissions		3,691		2,651
Accrued bonuses		1,348		1,141
Other accrued compensation		1,489		611
Total accrued compensation	$	8,552	$	5,980

Other Accrued Liabilities

The Company’s other accrued liabilities consisted of the following:

	December 31,		December 31,
	2015		2014
	(in thousands)
Accrued expenses	$	17,870	$	8,560
Accrued rent		450		551
Deferred lease obligation		42		99
Accrued interest		—		764
Sales tax payable		346		367
Total other accrued liabilities	$	18,708	$	10,341

6.Commitments and Contingencies

Operating Leases

As of December 31, 2015, the Company sub‑leases office facilities under non‑cancelable operating lease agreements. In January 2013, the Company amended its sublease agreement to expand its corporate headquarters. In connection with the amendment, the Company executed a letter of credit in favor of the lessors for $0.8 million, which is secured with a restricted cash account. The related subleases expire in October 2016.

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On March 21, 2014, the Company entered into an additional sub‑lease agreement to expand its corporate headquarters for additional office and laboratory space. In connection with the sub-lease, the Company executed a letter of credit in April 2015 in favor of the lessors for $0.3 million, which is secured with a restricted cash account. The lease and additional sub‑lease expire in January 2017.

In April 2015, the Company entered into a sub-lease agreement for additional office space in Redwood City, California. The additional space carries a base rent of $0.1 million per month. The lease period began in June 2015 and will terminate in August 2016 with no option to extend the lease. In addition, the Company paid a security deposit of $0.1 million.

In September 2015, the Company’s subsidiary entered into a long-term lease agreement for lab and office space in Austin, Texas. The lease term is 132 months beginning in December 2015 with monthly payments beginning in December 2016, increasing from $0.1 million to $0.2 million. Per the terms of the lease, the subsidiary has paid a security deposit of $0.4 million, and the agreement provides foran allowance for leasehold improvements of up to $7.8 million.

In October 2015, the Company’s subsidiary entered into a one year lease agreement for temporary office space in Austin, Texas. The property carries a monthly rent of $12,900 per month for the 12 months of the lease and $12,900 per month on a month to month basis following the 12th month. The terms of the lease include a $12,900 security deposit

In October 2015, the Company extended its corporate headquarters lease agreement for the lease of two spaces totaling approximately 88,000 square feet through October 5, 2023. Upon the expiree of the current lease,the lease agreement commences in October 2016 at a monthly rent of $0.2 million per month and increase each year thereafter to a maximum of $0.4 million in the final year of the initial term of the lease. The Company is entitled to a tenant improvement allowance of $0.4 million, to be expended prior to April 1, 2018, for the costs related to the design and construction of improvements to the facilities. The terms of the lease include a $0.5 million security deposit, and the option to extend the lease for an additional five years per the terms of the lease agreement.

The future annual minimum lease payments under all non-cancelable operating leases as of December 31, 2015 are as follows:

	Operating Leases
	(in thousands)
Year ending December 31:
2016	$	3,212
2017		5,442
2018		5,976
2019		6,140
2020		6,304
2021 and thereafter		25,922
Total future minimum lease payments	$	52,996

Rent expense for the years ended December 31, 2015, 2014 and 2013 was $2.7 million, $1.5 million and $1.3 million, respectively. The Company is also required to pay its share of facility operating expenses with respect to the facilities in which it operates.

Legal Proceedings

From time to time, the Company is involved in disputes, litigation, and other legal actions. The Company is aggressively defending its current litigation matters, and while there can be no assurances and the outcome of these matters is currently not determinable, the Company currently believes that there are no existing claims or proceedings that are likely to have a material adverse effect on its financial position. There are many uncertainties associated with any litigation and these actions or other third-party claims against the Company may cause the Company to incur costly litigation and/or substantial settlement charges.

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In addition, the resolution of any intellectual property litigation may require the Company to make royalty payments, which could adversely affect gross margins in future periods. If this were to occur, the Company's business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from the Company's estimates, if any, which could result in the need to record or adjust a liability and record additional expenses. During the periods presented, the Company has not recorded any accrual for loss contingencies associated with such legal proceedings, determined that an unfavorable outcome is probable or reasonably possible, or determined that the amount or range of any possible loss is reasonably estimable.

On March 4, 2016, a lawsuit was filed against Natera in the Superior Court of the State of California for the County of San Diego, by a patient alleging that Natera failed to perform a test that was ordered. The complaint seeks unspecified damages. The Company has notified its insurer, who is providing a defense under a reservation of rights. The Company intends to vigorously defend against the claims in this lawsuit, and assert any counterclaims that may be available to it, but cannot provide any assurance as to the ultimate outcome or that an adverse resolution of this lawsuit would not have a material adverse effect on its financial condition and results of operations. In light of, among other things, the early stage of the litigation, the Company is unable to predict the outcome of this matter and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from an unfavorable outcome.

On February 17, 2016 and March 10, 2016,  two purported class action lawsuits  were filed in the Superior Court of the State of California for the County of San Mateo, against Natera, its directors and certain of its officers and 5% stockholders and their affiliates, and each of the underwriters of its July 1, 2015 initial public offering (the "IPO"). The complaints  assert claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended. The complaints allege, among other things, that the Registration Statement and Prospectus for the Company’s IPO contained materially false or misleading statements, and/or omitted material information that was required to be disclosed, about the Company’s business and prospects. Among other relief, the complaints seek class certification, unspecified compensatory damages, rescission, attorneys' fees, and costs. The Company intends to defend the matter vigorously. The Company is still in the preliminary stages of reviewing the allegations made in the complaints, and cannot provide any assurance as to the ultimate outcome or that an adverse resolution would not have a material adverse effect on its financial condition and results of operations.In light of, among other things, the early stage of the litigations, the Company is unable to predict the outcome and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from any unfavorable outcome.

On January 6, 2012, the Company filed a declaratory judgment action in the U.S. District Court for the Northern District of California, alleging that U.S. Patent No. 6,258,540 licensed by Sequenom, Inc. ("Sequenom") from Isis Innovation Limited, Inc. ("Isis") (the '540 patent), is invalid, unenforceable and not infringed by the Company. The '540 patent relates to non-invasive prenatal diagnosis methods. This case was consolidated in the Northern District of California with a case that Sequenom, an affiliate of Sequenom, and Isis brought on January 24, 2012 in the Southern District of California alleging infringement by the Company and DNA Diagnostics Center, Inc., the Company's licensee, and at the time, the distributorof its non-invasive paternity test, of certain claims of the '540 patent. Ariosa Diagnostics, Inc. ("Ariosa") and Verinata Health, Inc. ("Verinata"), now a division of Illumina, Inc., also filed declaratory judgment actions regarding the '540 patent against Sequenom in the Northern District. Sequenom asserted counterclaims of infringement of the '540 patent against both Ariosa and Verinata in those respective cases. All of these cases were designated related cases. On October 30, 2013, the District Court issued an order granting Ariosa's motion for summary judgment in its case against Sequenom, finding that the claims asserted against Ariosa are invalid under 35 U.S.C. §101 for reciting non-patentable subject matter. Many of the claims of the '540 patent asserted against the Company were invalidated by this order. Subsequently, Sequenom entered into stipulations with Verinata and the Company conditionally agreeing that the remaining asserted claims of the '540 Patent should be deemed invalid under 35 U.S.C. §101. The Court then entered judgment in favor of Verinata and the Company in their respective cases in November 2013. Sequenom has appealed all three judgments to the Court of Appeals for the Federal Circuit ("CAFC"). The CAFC has consolidated the Ariosa, Verinata and the Company's cases for purposes of appeal, such that the CAFC can make a single ruling on the '540 patent claims that apply to all parties involved. The appellate arguments were heard on November 7, 2014. On December 2, 2014, Sequenom and Verinata settled the pending claims between them. On June 12, 2015, the CAFC affirmed the district court's finding of invalidity with respect to the Company and Ariosa. On August 13, 2015, Sequenom requested a rehearing en banc by the full panel of the CAFC, and on October 19, 2015, the Company and Ariosa each filed a response to Sequenom’s request.  On December 2, 2015, Sequenom’s petition for a rehearing en banc was denied. On March 21, 2016, Sequenom

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filed a petition for writ of certiorari with the Supreme Court.  The Company intends to continue to vigorously assert its claims and defend against the counterclaims in this lawsuit, but it cannot be certain of the outcome.

Third-Party Payer Reimbursement Audits

In November 2014, a third-party payer sought information as part of an investigative audit of claims which it had paid for certain genetic testing. The Company complied with their request and provided responsive information. In a letter dated June 2, 2015, the third-party payer alleged that it had overpaid $1.9 million to the Company,  which it claimed was an overpayment reflecting the difference between what it paid to the Company and what it contended it should have paid based on its fee schedule and coverage determinations. In August 2015, the Company reached an agreement for a settlement payment of $1.2 million as part of a complete settlement of this matter. This charge was recorded against revenue in the second quarter of 2015.

Contractual Commitment

As of December 31, 2015, the Company has non‑cancelable contractual commitments with a supplier of approximately $12.2 million and other material supplier commitments of approximately $1.5 million in the aggregate for inventory material used in the laboratory testing process.

In January 2015, the Company entered into a laboratory services agreement with a total remaining minimum of approximately $5.1 million through October 2016.

7.    Stock‑Based Compensation

Equity Plans

2015 Equity Incentive Plan

General.    Our board of directors adopted our 2015 Equity Incentive Plan, or our 2015 Plan, in June 2015. Our 2015 Plan replaced our 2007 Stock Plan. However, awards outstanding under the 2007 Plan will continue to be governed by the terms of the 2007 plan.

Share Reserve.    The initial number of shares of our common stock available for issuance under our 2015 Plan was 3,451,495 shares. As of December 31, 2015, 3,743,382 shares were available for issuance under the 2015 plan which includes unissued and forfeited shares from the 2007 plan. The number of shares reserved for issuance under the 2015 Plan will be increased automatically on the first business day of each of our fiscal years, commencing in 2016, by a number equal to the smallest of:

· 3,500,000 shares;

· 4% of the shares of common stock outstanding on the last business day of the prior fiscal year; or

· the number of shares determined by our board of directors.

In general, to the extent that any awards under the 2015 Plan are forfeited, terminate, expire or lapse without the issuance of shares, or if we repurchase the shares subject to awards granted under the 2015 Plan, those shares will again become available for issuance under the 2015 Plan, as will shares applied to pay the exercise or purchase price of an award or to satisfy tax withholding obligations related to any award.

Eligibility.    Employees, non-employee directors, consultants and advisors are eligible to participate in our 2015 Plan.

Under our 2015 Plan, the aggregate grant date fair value of awards granted to our non-employee directors may not exceed $500,000 in any one fiscal year, except that the grant date fair value of awards granted to newly appointed non-

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employee directors may not exceed $1,000,000 in the fiscal year in which such non-employee director is initially appointed to our board of directors.

Types of Awards.    Our 2015 Plan provides for the following types of awards:

· incentive and nonstatutory stock options;

· stock appreciation rights;

· restricted shares;

· stock units; and

· performance cash awards.

Options and Stock Appreciation Rights.    The exercise price for options granted under the 2015 Plan may not be less than 100% of the fair market value of our common stock on the grant date. Optionees may pay the exercise price in cash or, with the consent of the compensation committee by other approved methods.

An optionee who exercises a stock appreciation right receives the increase in value of our common stock over the base price. The base price for stock appreciation rights may not be less than 100% of the fair market value of our common stock on the grant date. The settlement value of a stock appreciation right may be paid in cash, shares of our common stock or a combination.

Options and stock appreciation rights vest as determined by the compensation committee. In general, they will vest over a four-year period following the date of grant. Options and stock appreciation rights expire at the time determined by the compensation committee but in no event more than ten years after they are granted. These awards generally expire earlier if the participant's service terminates earlier. No participant may be granted stock options or stock appreciation rights under our 2015 Plan covering more than 1,725,000 shares in any fiscal year, except that a new employee may receive stock options or stock appreciation rights covering up to 350,000 additional shares in the fiscal year in which employment commences.

Restricted Shares and Stock Units.    Restricted shares and stock units may be awarded under the 2015 Plan in return for any lawful consideration, and participant who receive restricted shares or stock units generally are not required to pay cash for their awards. In general, these awards will be subject to vesting. Vesting may be based on length of service, the attainment of performance-based milestones or a combination of both, as determined by the compensation committee. No participant may be granted restricted share awards or stock units with performance-based vesting covering more than 1,500,000 shares during any fiscal year, except that a new employee may receive restricted shares or stock units covering up to 300,000 additional shares in the fiscal year in which employment commences. Settlement of vested stock units may be made in the form of cash, shares of common stock or a combination.

Performance Cash Awards.    Performance cash awards may be granted under the 2015 Plan that qualify as performance-based compensation that is not subject to the income tax deductibility limitations imposed by Section 162(m) of the Internal Revenue Code, if the award is approved by our compensation committee and the grant or vesting of the award is tied solely to the attainment of performance goals during a designated performance period. No participant may be paid more than $5,000,000 in cash in any calendar year pursuant to a performance cash award granted under the 2015 Plan.

To the extent a performance award is not intended to comply with Section 162(m) of the Internal Revenue Code, the compensation committee may select other measures of performance.

Corporate Transactions.    In the event we are a party to a merger, consolidation or certain change in control transactions, outstanding awards granted under the 2015 Plan, and all shares acquired under the 2015 Plan, will be subject

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to the terms of the definitive transaction agreement (or, if there is no such agreement, as determined by our compensation committee).

The compensation committee is not required to treat all awards, or portions thereof, in the same manner.

The vesting of an outstanding award may be accelerated by the administrator upon the occurrence of a change in control, whether or not the award is to be assumed or replaced in the transaction, or in connection with a termination of service following a change in control transaction.

Changes in Capitalization.    In the event of certain changes in our capital structure without our receipt of consideration, such as a stock split, reverse stock split or dividend paid in common stock, proportionate adjustments will automatically be made to the maximum number and kind of shares available for issuance under the 2015 Plan and outstanding stock award, if any as applicable.

In the event that there is a declaration of an extraordinary dividend payable in a form other than our common stock in an amount that has a material effect on the price of our common stock, a recapitalization, a spin-off or a similar occurrence, the compensation committee may make such adjustments to any of the foregoing as it deems appropriate, in its sole discretion.

Amendments or Termination.    Our board of directors may amend or terminate the 2015 Plan at any time. If our board of directors amends the 2015 Plan, it does not need stockholder approval of the amendment unless required by applicable law, regulation or rules. The 2015 Plan will terminate automatically 10 years after the later of the date when our board of directors adopted the 2015 Plan or approved the latest share increase that was also approved by our stockholders.

2007 Stock Plan

General.    Our board of directors adopted our 2007 Plan in January 2007, and it was approved by our stockholders. No further awards have been made under our 2007 Plan after July 1, 2015, the date of our initial public offering; however, awards outstanding under our 2007 Plan will continue to be governed by their existing terms.

Share Reserve.    As of December 31, 2015, we reserved 15,258,947 shares of our common stock for issuance under the 2007 Plan, all of which may be issued as incentive stock options. As of December 31, 2015, options to purchase 8,621,395 shares of common stock, at exercise prices ranging from $0.0065 to $12.8501 per share, or a weighted-average exercise price of $3.27 per share, were outstanding under the 2007 Plan.

Administration.    The compensation committee of our board of directors administers the 2007 Plan and the administrator has complete discretion to make all decisions relating to the 2007 Plan and outstanding awards.

Eligibility.    Employees, non-employee members of our board of directors, consultants and advisors were eligible to participate in our 2007 Plan.

Types of Awards.    Our 2007 Plan provides for the following types of awards:

· incentive and nonstatutory stock options; and

· restricted shares.

Options.    The exercise price for stock options granted under our 2007 Plan may not be less than 100% of the fair market value of our common stock on the grant date. Optionees may pay the exercise price in cash or cash equivalents or in one, or by any combination of, the following forms of payment, as permitted by the administrator in its sole discretion:

· by delivery of a full-recourse promissory note, with the shares pledged as security against the principal and accrued interest on the note;

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· with shares of common stock that the optionee already owns;

· by an immediate sale of the shares through a broker approved by us, if shares of our common stock are publicly traded;

· by instructing us to withhold a number of shares having an aggregate fair market value that does not exceed the exercise price; or

· by other methods permitted by applicable law.

Options vest as determined by the administrator. In general, we granted options that vest over a four-year period following the date of grant. In most cases, options granted prior to 2011 (and prior to 2012 with respect to our executive officers) were immediately exercisable, subject to our right to repurchase unvested shares. Options expire at the time determined by the administrator, but in no event more than ten years after they were granted, and generally expire earlier if the optionee's service terminates earlier.

Restricted Shares.    Restricted shares could be awarded or sold under the 2007 Plan in return for cash or cash equivalents or, as permitted by the administrator in its sole discretion, in exchange for services rendered to us, by delivery of a full-recourse promissory note or through any other means permitted by applicable law. Restricted shares vest as determined by the administrator.

Corporate Transactions.    In the event that we are a party to a merger or consolidation, shares acquired under the 2007 Plan will be subject to the agreement of merger or consolidation. Such agreement will provide for one or more of the following with respect to outstanding options:

· the continuation, assumption or substitution of the option by the surviving entity or its parent;

· full exercisability and vesting of the option, followed by cancellation if not exercised; or

· cancellation of the option in exchange for a payment equal to the excess, if any, of the value that the holder of a share of our common stock receives in the transaction over the exercise price per share of the option. Such payment may be subject to vesting based on the optionee's continuing service, generally in accordance with the vesting schedule applicable to the option.

The administrator is not obligated to treat all awards in the same manner. The administrator has the discretion, at any time, to provide that an award granted under the 2007 Plan will vest on an accelerated basis if we are subject to a change of control or if the participant is subject to an involuntary termination.

Changes in Capitalization.    In the event of certain specified changes in the capital structure of our common stock, such as a stock split, reverse stock split, stock dividend, reclassification or any other increase or decrease in the number of issued shares of stock effective without receipt of consideration by us, proportionate adjustments will automatically be made in each of the number of shares covered by each outstanding option under the 2007 Plan and the exercise price per share subject to each outstanding option. In the event of an extraordinary cash dividend that has a material effect on the fair market value of our common stock, a recapitalization, spin-off, or other similar occurrence, the administrator at its sole discretion may make appropriate adjustments in one or more of the number of shares covered by each outstanding option under our 2007 Plan and the exercise price per share subject to each outstanding option.

Amendments or Termination.    The administrator may at any time amend, suspend or terminate the 2007 Plan, subject to stockholder approval if the amendment increases the number of shares available for issuance or materially changes the class of persons eligible to receive incentive stock options. The 2007 Plan will terminate automatically 10 years after the later of the date when our board of directors adopted the 2007 Plan or approved the latest share increase that was also approved by our stockholders.

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2015 Employee Stock Purchase Plan

General.    Our 2015 Employee Stock Purchase Plan, or 2015 ESPP, was adopted by our board of directors in June 2015 and our stockholders approved it in June 2015. The first offering period under our 2015 ESPP started on December 15, 2015. Our 2015 ESPP is intended to qualify under Section 423 of the Internal Revenue Code.

Share Reserve.    We have reserved 893,548 shares of our common stock for issuance under the 2015 ESPP. The number of shares reserved for issuance under the 2015 ESPP will automatically be increased on the first business day of each of our fiscal years, commencing in 2016, by a number equal to the least of:

· 880,000 shares;

· 1% of the shares of common stock outstanding on the last business day of the prior fiscal year; or

· the number of shares determined by our board of directors.

The number of shares reserved under the 2015 ESPP will automatically be adjusted in the event of a stock split, stock dividend or a reverse stock split (including an adjustment to the per-purchase period share limit).

Administration.    The compensation committee of our board of directors will administer the 2015 ESPP.

Eligibility.    All of our employees are eligible to participate if we employ them for more than 20 hours per week and for five or more months per year. Eligible employees may begin participating in the 2015 ESPP at the start of any offering period.

Offering Periods.    Each offering period will last a number of months determined by the compensation committee, not to exceed 27 months. A new offering period will begin periodically, as determined by the compensation committee. Offering periods may overlap or may be consecutive. Unless otherwise determined by the compensation committee, two offering periods of six months' duration will begin in each year on May 1 and November 1. However, if so determined by the compensation committee, the first offering period started on December 15, 2015 and will end on April 30, 2016, with the first purchase date occurring on April 29, 2016.

Amount of Contributions.    Our 2015 ESPP permits each eligible employee to purchase common stock through payroll deductions. Each employee's payroll deductions may not exceed 15% of the employee's cash compensation. Each participant may purchase up to the number of shares determined by our board of directors on any purchase date, not to exceed 5,000 shares. The value of the shares purchased in any calendar year may not exceed $25,000. Participants may withdraw their contributions at any time before stock is purchased.

Purchase Price.    The price of each share of common stock purchased under our 2015 ESPP will not be less than 85% of the lower of the fair market value per share of common stock on the first day of the applicable offering period (or, in the case of the first offering period, the price at which one share of common stock is offered to the public in this offering) or the fair market value per share of common stock on the purchase date.

Other Provisions.    Employees may end their participation in the 2015 ESPP at any time. Participation ends automatically upon termination of employment with us. If we experience a change in control, our 2015 ESPP will end and shares will be purchased with the payroll deductions accumulated to date by participating employees. Our board of directors or our compensation committee may amend or terminate the 2015 ESPP at any time.

Early Exercise of Employee Options

As of December 31, 2015, the Company had approximately 1.3 million exercised and unvested shares outstanding that are subject to a repurchase right held by the Company at the original issuance price in the event that the optionee’s employment is terminated, either voluntarily or involuntarily. Effective in the year ended December 31, 2015, pursuant to the agreements with the option holders, the Company changed its estimated expiration of the Company’s repurchase right

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for 1.3 million exercised and unvested shares outstanding that are subject to repurchase right held by the Company through the 210 days after the date of the prospectus filed in connection with the Company’s IPO. Accordingly the unrecognized compensation expense is being accelerated over a shorter performance period through January 2016. As a result of this acceleration, the Company recorded an additional $1.3 million in stock-based compensation expense during the year ended December 31, 2015.

Stock Options

The following table summarizes option activity for the years ended December 31, 2015, 2014 and 2013:

	Outstanding Options
					Weighted-
			Weighted-		Average
	Shares		Average		Remaining	Aggregate
	Available for	Number of	Exercise		Contractual	Intrinsic
(in thousands, except for contractual life and exercise price)	Grant	Shares	Price		Life	Value
					(In years)
Balance at December 31, 2014	294	8,463	$	2.28	8.83	$	43,659
Additional shares authorized	4,985	—
Options granted	(2,181)	2,181	$	10.16
Options exercised	—	(683)	$	1.72
Options forfeited	645	(645)	$	5.25
Balance at December 31, 2015	3,743	9,316	$	3.96	8.31	$	63,713
Exercisable at December 31, 2015		5,602	$	1.90	5.31	$	49,880
Vested and expected to vest at December 31, 2015		8,414	$	3.72	7.32	$	59,529

The total intrinsic value of stock options exercised during the years ended December 31, 2015, 2014 and 2013 was $6.9 million, $1.2 million and $0.7 million, respectively. The total fair value of stock options vested during the years ended December 31, 2015, 2014 and 2013 was $4.5 million $4.1 million and $1.0 million, respectively.

The weighted-average grant date fair value of options granted during the years ended December 31, 2015, 2014 and 2013 was $7.29,  $3.28 and $0.99 per share, respectively.

Stock‑Based Compensation Expense

Employee and non‑employee stock‑based compensation expense was calculated based on awards ultimately expected to vest and have been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates.

The following table presents the effect of employee and non‑employee stock‑based compensation expense on selected statements of operations line items for the years ended December 31, 2015, 2014 and 2013.

	Year ended December 31,
	2015						2014						2013
	Employee		Non-Employee		Total		Employee		Non-Employee		Total		Employee		Non-Employee		Total
	(in thousands)
Cost of revenues	$	351	$	241	$	592	$	262	$	29	$	291	$	55	$	7	$	62
Research and development		1,566		9		1,575		1,563		30		1,593		612		4		616
Selling, general and administrative		4,993		166		5,159		3,180		93		3,273		970		9		979
Total	$	6,910	$	416	$	7,326	$	5,005	$	152	$	5,157		1,637	$	20	$	1,657

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As of December 31, 2015, approximately $14.7 million of unrecognized compensation expense, adjusted for estimated forfeitures, related to unvested stock options will be recognized over a weighted‑average period of approximately 1.96 years.

Valuation of Stock Option Grants to Employees

The Company estimates the fair value of its stock options granted to employees on the grant date using the Black‑Scholes option‑pricing model. The fair value of employee stock options is amortized on a straight‑line basis over the requisite service period of the awards, generally the vesting period. The fair value of employee stock options was estimated using the following assumptions:

	Year ended December 31,
	2015					2014					2013
Expected term	5.6		—	10.0		4.91		—	7.06		6.0
Expected volatility	69.7	%	—	78.8	%	73.4	%	—	87.0	%	63.7	%	—	85.7	%
Expected dividend rate				0	%				0	%				0	%
Risk-free interest rate	1.56	%	—	2.32	%	1.65	%	—	2.04	%	0.44	%	—	2.86	%

Expected Term:    The expected term of options represents the period of time that options are expected to be outstanding. The Company's historical stock option exercise experience does not provide a reasonable basis upon which to estimate an expected term due to a lack of sufficient data. For granted "at-the-money" stock options, the Company estimates the expected term by using the simplified method permitted by the Securities and Exchange Commission. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options. For stock options that are not granted "at-the-money," the Company uses the binomial lattice model to calculate the expected term.

Expected Volatility:    The Company derived the expected volatility from the average historical volatilities of comparable publicly traded companies within its peer group over a period approximately equal to the expected term.

Expected Dividend Rate:    The Company has not paid and does not anticipate paying any dividends in the near future.

Risk-Free Interest Rate:    The risk-free interest rate assumption is based on U.S. Treasury yield in effect at the time of grant for zero coupon U. S. Treasury notes with maturities approximately equal to the expected term.

Valuation of Stock Option Grants to Non-Employees

Total options outstanding as of December 31, 2015, include 0.2 million options that were granted to non-employees, of which 0.1 million options are unvested. Stock-based compensation expense related to stock options granted to non-employees is recognized as the stock option is earned and the services are rendered. The Company believes that the estimated fair value of the stock options is more readily measurable than the fair value of the services rendered. The fair value of the stock options granted to non-employees is calculated at each reporting date using the Black-Scholes options-pricing model with the following assumptions:

	Year ended December 31,
	2015					2014					2013
Expected term	4.9		—	9.8		4.4		—	10.0		8.4
Expected volatility	70.2	%	—	75.4	%	71.9	%	—	80.2	%	75.6	%	—	81.5	%
Expected dividend rate				0	%				0	%				0	%
Risk-free interest rate	1.74	%	—	2.24	%	1.41	%	—	2.61	%	1.44	%	—	2.51	%

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8.  Debt

Senior Secured Term Loan

In April 2013, as amended in June 2014, the Company entered into a senior secured term loan arrangement (the "Secured Loan Arrangement") with ROS Acquisition LP ("ROS"). The Secured Loan Arrangement provided for up to $40.0 million in borrowing capacity ("Credit Agreement"), a warrant to purchase shares of Common Stock, and an agreement to pay royalties on Company revenues ("Royalty Agreement"). The Company borrowed $20.0 million on the effective date of the Credit Agreement. The Credit Agreement provided for an interest rate equal to the greater of (a) LIBOR or (b) 1% per annum plus the applicable margin of 8% per annum or 9% floor on the outstanding balance of the term loan. The Royalty Agreement obligated the Company to make royalty payments of 1% applied to total Company fiscal year revenues of up to $50.0 million and 1.5% applied to fiscal year incremental revenues above $50.0 million. For the year ended December 31, 2015, the Company incurred approximately $1.4 million and $7.1 million in interest expenses under the Credit Agreement and royalty expenses under the Royalty Agreement, respectively.  The $7.1 million in royalty expense included $1.8 million in royalty due and the remainder was for part of the $28.0 million pay-off to ROS.  Please refer to paragraph below for pay-off details. For the year ended December 31, 2014, the Company incurred approximately $1.8 million and $2.2 million in interest expenses under the Credit Agreement and royalty expenses under the Royalty Agreement, respectively. For the year ended December 31, 2013, the Company incurred approximately $1.3 million and $0.5 million in interest expenses under the Credit Agreement and royalty expense under the Royalty agreement, respectively. The interest on the loan is set forth in the financial statements as interest expense below loss from operations. The effective yield was approximately 20.9%, 19.8% and 12.6%, respectively, for the year ended December 31, 2015, 2014 and 2013, excluding royalty and interest early termination payments. Under the terms of the Secured Loan Arrangement, the Company issued ROS a warrant to purchase 376,691 shares of common stock with an exercise price of $2.3229 per share. The Credit Agreement principal is due and payable on April 18, 2019. The Company could at its option, prepay the term loan borrowings subject to a prepayment premium equivalent to 10% of the outstanding principal. Prepayment of the amount due under the Credit Agreement did not eliminate the royalty payment obligation, which if not terminated, would have expired no later than April 18, 2023.

ROS maintained a security interest in substantially all of the Company's tangible and intangible assets, including intellectual property, to secure any outstanding amounts under the Credit Agreement. The Credit Agreement contained customary events of default, conditions to borrowing and covenants, including restrictions on the ability to dispose of assets, make acquisitions, incur debt, incur liens and make distributions to stockholders, including dividends. The Credit Agreement also included a financial covenant requiring the maintenance of minimum liquidity of $5.0 million and minimum revenue thresholds. During the continuance of an event of a default, ROS could have accelerated amounts outstanding, terminate the credit facility and foreclose on all collateral. The Company was in compliance with all covenants under the terms of the Secured Loan Arrangement with ROS throughout the life of the loan.

In October 2015, the Company paid off the entire $20.0 million in borrowings under the Secured Loan Arrangement with ROS. The Company made a payment of $28.0 million to ROS, comprising $20.0 million in principal, $2.0 million (10% outstanding principal) in prepayment penalty and $6.0 million (which includes royalty amounts for third quarter 2015 transactions and the cost to extinguish the liability) in royalty payment applied toward the royalty obligation. This payment released the Company from all future loan payments, royalty payments and all associated liens securing the loan.

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Credit Line Agreement

In September 2015, the Company entered into the Credit Line with UBS providing for a $50.0 million revolving line of credit which can be drawn down in increments at any time.  In October 2015, the Company borrowed $32.0 million against the Credit Line, primarily to prepay all outstanding amounts under the Secured Loan Arrangement with ROS. The Credit Line bears interest at 30-day LIBOR plus 0.65%, and equals approximately 0.84% per annum at the time of the draw.  In November, 2015, the Company borrowed an additional $10.0 million which bears interest at approximately 0.85% per annum.  The Credit Line is secured by a first priority lien and security interest in the Company’s money market and marketable securities held in its managed investment account with UBS. UBS has the right to demand full or partial payment of the Credit Line Obligations and terminate the Credit Line, in its discretion and without cause, at any time.

Equipment Financing Facility

In April 2013, the Company entered into an equipment financing facility (the “Equipment Financing Facility”) with a financial institution pursuant to which the Company could borrow up to $5.0 million to fund equipment purchases. The financial institution maintained a security interest in the underlying equipment until payment in full of the loan. The loan bore interest at the financial institution's prime reference rate (defined as the 30-day LIBOR rate plus 2.50%) plus 4.10%, which equaled 7.35% upon closing of the agreement. In December 2014, the Company amended the Equipment Financing Facility increasing the loan amount to $5.9 million to fund equipment purchased. The Company paid interest on the unpaid principal at the financial institution's prime reference rate plus 3.10%, which equaled 6.35%. Under the terms of the Equipment Financing Facility, the loan would mature on May 31, 2017. Under the terms of the Equipment Financing Facility, the Company would be required to make 30 payments of principal and interest through the maturity of the loan in May 2017.

In September 2015, the Company paid off the remaining principal balance of the equipment financing facility.  The Company made a payment of $4.1 million, comprising of principal, interest and administrative fees settling all of its obligations under the loan.

9.Warrants

In 2007, the Company issued warrants to purchase an aggregate of 24,538 shares of common stock at an exercise price of $0.0978 per share to various holders. As of December 31, 2015, these warrants were fully exercised.

In 2009, the Company granted warrants to purchase 33,742 shares of Series B convertible preferred stock at an exercise price of $1.8908 per share. The warrants were granted to a financial institution in connection with a secured equipment loan and expire on November 2, 2019. In connection with the IPO in July 2015, these warrants were converted into the right to purchase common stock at a one-to-one ratio. In December 2015, the financial institution net-exercised all 33,742 of their warrant shares at the strike price of $1.8908 per share.  Based on the Natera closing price of $11.57 per share on the prior business day, Natera issued 28,227 shares to the financial institution.

In April 2014, the Company granted warrants to purchase approximately 376,691 warrants to purchase common stock at an exercise price of $2.3229 per common share.  The warrants were granted to ROS Acquisition Offshore LP in connection with our senior secured term loan and expire on April 18, 2023. It was determined that the warrants granted are detachable and therefore are a stand-alone component of the senior secured term loan to be fair valued using Level III inputs as a separate derivative.  As of December 31, 2015, these warrants remained exercisable for common stock.

In connection with the Series F financing, the Series E preferred stockholders agreed to change the liquidation preference from two times to one times the liquidation value as described in the agreement. In exchange, on November 20, 2014, the Company issued common stock warrants to the Series E preferred stockholders to purchase 429,440 shares at $0.0163 per share. The warrants are carried in Additional Paid In Capital and the issuance of the warrants was treated as a deemed dividend by the common stockholder out of Additional Paid in Capital. In connection with the IPO in July 2015, such warrants were automatically net exercised into 429,042 shares of common stock.

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10.    Convertible Preferred Stock

At the closing of the IPO in July 2015, 31,397,221 shares of outstanding convertible preferred stock were automatically converted into common stock on a one-to-one basis. Following the IPO, there were no shares of preferred stock outstanding. In connection with the IPO, the Company amended and restated its Amended and Restated Certificate of Incorporation to change the authorized capital stock to 750.0 million shares designated as common stock and 50.0 million shares designated as preferred stock, all with a par value of $0.0001 per share.

As of December 31, 2014, the convertible preferred stock consisted of the following:

	Shares	Shares Issued and	Liquidation		Proceeds, net of
Series	Authorized	Outstanding	Amount		Issuance Costs
	(in thousands)
A-1	5,000	3,067	$	20	$	20
A	8,173	5,014		4,005		3,927
B	5,745	3,491		6,600		6,569
C	8,941	5,485		12,160		58,876
D	6,694	4,107		20,047		80,788
E	9,592	5,884		35,425		35,019
F	7,088	4,349		55,500		55,413
	51,233	31,397	$	133,757	$	240,612

Each share of Series A-1, Series A, Series B, Series C, Series D, Series E and Series F convertible preferred stock was convertible, at the option of the holder, into that number of fully paid and non-assessable shares of common stock that was equal to $0.0065,  $0.7987,  $1.8908,  $2.2168,  $4.8819,  $6.0199, and $12.7629 per share, respectively (as adjusted for stock splits, combinations, and reorganizations), divided by the conversion price of $0.0065,  $0.7987,  $1.8908,  $2.2168,  $4.8819,  $6.0199, and $12.7629, respectively (as adjusted for stock splits, combinations, and reorganizations). Additionally, each share of convertible preferred stock automatically converted into shares of common stock at the conversion rate at the time in effect for such series of convertible preferred stock immediately upon the earlier of: (i) the Company's sale of its common stock in a firm commitment underwritten public offering pursuant to a registration statement on Form S-1 under the Securities Act of 1933, as amended, the public offering price of which was not less than $40.0 million in the aggregate; or (ii) the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of convertible preferred stock (voting together as a single class and not as separate series, and on an as-converted basis); provided, however, that an automatic conversion of the outstanding shares of Series E convertible preferred stock pursuant to clause (ii) above required the written consent or agreement of the holders of at least seventy percent of the outstanding shares of Series E convertible preferred stock unless such conversion is in connection with (x) an underwritten public offering of this corporation or (y) a bona fide financing transaction with a pre-money equity valuation on an as converted, fully diluted basis of less than $100.0 million that results in a recapitalization of the Company, in which case on the consent of the holders of a majority of the then outstanding shares of convertible preferred stock (voting together as a single class and not as separate series, and on an as-converted basis) was required to convert each share of convertible preferred stock. Series A and Series B preferred stockholders could elect two Board members (voting together as a single class) and Series C preferred stockholders could elect one Board member. No Board member had been elected at this time for the Series C convertible preferred stock.

The holders of shares of convertible preferred stock were entitled to receive dividends, on an equal basis, out of any assets legally available thereof, prior and in preference to any declaration or payment of any dividend (payable other than in common stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of common stock of this corporation) on the common stock of this corporation, at the applicable Dividend Rate (as defined below), payable when, as, and if declared by the Board. Such dividends were cumulative. Dividend Rate means $0.0639 per annum for each share of Series A convertible preferred stock, $0.0005 per annum for each share of Series A-1 convertible preferred stock, $0.1513 per annum for each share of Series B convertible preferred stock, $0.1773 per annum for each share of Series C convertible preferred stock, $0.3911 per annum for each share of Series D convertible preferred stock, $0.4817 per annum for each share of Series E convertible preferred stock, and $1.021 per annum for each share of Series F convertible preferred stock (each as adjusted for any stock splits, stock dividends, combinations, subdivisions, or recapitalizations).

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In the event of a Company liquidation, the holders of Series E and Series F convertible preferred stock were entitled to receive, prior and in preference to any distribution of the proceeds of such liquidation to the holders of Series A, Series A-1, Series B, Series C, and Series D convertible preferred stock by reason of their ownership thereof, an amount per share equal to the sum of the original issue price for the Series E and Series F convertible preferred stock, plus declared and unpaid dividends on such shares.

The holder of each share of convertible preferred stock had the right to one vote for each share of common stock into which such preferred stock could be converted and such holder had full voting rights and powers equal to the voting rights and powers of the holders of common stock, and was entitled to notice of any stockholders' meeting in accordance with the bylaws of the Company, except as provided for the election of directors by separate class vote of the holders of common stock, and was entitled to vote, together with holders of common stock, with respect to any question upon which holders of common stock have the right to vote. The Series A and Series B preferred stockholders could elect one director (voting together as a single class, not as a separate series and on an as-converted basis) and Series C preferred stockholders could elect one director at any election of directors.

11.Common Stock

The Company's Certificate of Incorporation, as restated in connection with the closing of the IPO, authorizes the Company to issue 750.0 million shares of common stock with a par value of $0.0001 per share. As of December 31, 2015 and December 31, 2014, the Company had 50.3 million and 6.9 million shares of common stock outstanding, respectively. Each shareholder of common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders.

The Company's board of directors and stockholders approved an amendment to its Certificate of Incorporation to effect a 1-for-1.63 reverse split of its capital stock, which was effected on June 19, 2015. All references to common stock, options to purchase common stock, restricted stock, share data, per share data, warrants, convertible preferred stock and related information have been retroactively adjusted where applicable in this report to reflect the reverse stock split of the Company's capital stock as if it had occurred at the beginning of the earliest period presented.

12.Income Taxes

The Company's effective tax rates for the years ended December 31, 2015 and 2014 differ from the U.S. federal statutory rate as follows:

	December 31,
	2015				2014
	(in thousands, except percentages)
U.S. federal taxes (benefit) at statutory rate	$	(24,375)	(34.00)	%	$	(1,747)	(34.00)	%
State tax expense		(2,428)	(3.39)	%		(294)	(5.72)	%
Research and development credits		(751)	(1.05)	%		(530)	(10.32)	%
Stock-based compensation		1,683	2.35	%		755	14.70	%
Mark to market fair value adjustments		504	0.70	%		566	11.01	%
Other nondeductible items		841	1.17	%		414	8.05	%
Change in valuation allowance		24,526	34.21	%		851	16.57	%
Provision for income taxes	$	—	—	%	$	15	0.29	%

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Due to its history of operating losses, the Company has not recorded any income tax expense for the years ended December 31, 2015 and December 31, 2014, except for $15 thousand of state income tax expense in 2014. As the provision for income taxes is not significant for 2015 and 2014, any income taxes have been reclassed in other income and expenses.

Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes as well as net operating loss and tax credit carryforwards.   The components of the net deferred income tax assets are as follows:

	December 31,
	2015		2014
	(in thousands)
Deferred tax assets
Net operating loss carryforwards	$	41,451	$	21,587
Research and development tax credit carryforwards		4,794		2,696
Reserves and accruals		3,108		1,717
Stock-based compensation		2,206		1,505
Total deferred tax assets before valuation allowance		51,559		27,505
Less: valuation allowance		(51,153)		(26,627)
		406		878
Deferred tax liabilities
Property and equipment		(406)		(878)
Net deferred tax assets	$	—	$	—

The Company established a full valuation allowance against its net deferred tax assets in 2015 and 2014 due to the uncertainty surrounding realization of these assets. The valuation allowance increased by $24.5 million, $0.9 million and $10.8 million during the years ended December 31, 2015, 2014 and 2013, respectively.

As of December 31, 2015, the Company had federal and state net operating loss (NOLs) carryforwards of approximately $114.5 million and $73.2 million, respectively, which begin to expire in 2027 and 2017, respectively, if not utilized. The deferred tax assets related to NOLs do not include excess tax benefits from employee stock option exercises. Equity will be increased by $1.4 million, if and when such deferred tax assets are ultimately realized. The Company uses ASC 740 ordering when determining when excess tax benefits have been realized. The Company also had federal research and development credit carryforwards of approximately $4.6 million, which begin to expire in 2027, and state research and development credit carryforwards of approximately $3.4 million, which can be carried forward indefinitely. Realization of these deferred tax assets would require $138.8 million in taxable income to fully utilize. Realization is dependent on generating sufficient taxable income prior to expiration of the loss and credit carryforwards.

Federal and California tax laws impose substantial restrictions on the utilization of NOLs and credit carryforwards in the event of an "ownership change" for tax purpose, as defined in Section 382 of the Internal Revenue Code. Accordingly, the Company's ability to utilize these carryforwards may be limited as the result of such ownership change. Such a limitation could result in limitation in the use of the NOLs in future years and possibly a reduction of the NOLs available.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

	December 31,
	2015		2014
	(in thousands)
Balance at beginning of year	$	1,360	$	898
Additions based on tax positions related to the current year		1,045		462
Additions for tax positions of prior years		—		—
Balance at end of year	$	2,405	$	1,360

The Company adopted the provisions of ASC 740-10-50, Accounting for Uncertainty in Income Taxes, on January 1, 2009. During the years ended December 31, 2015 and 2014, the amount of unrecognized tax benefits increased $1.0

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million and $0.5 million, respectively, due to additional research and development credits generated during the year. As of December 31, 2015 and 2014, the total amount of unrecognized tax benefits was $2.4 million and $1.4 million, respectively. The reversal of the uncertain tax benefits would not affect the Company's effective tax rate to the extent that it continues to maintain a full valuation allowance against its deferred tax assets.

The Company is subject to U.S. federal income taxes and to income taxes in various states in the United States. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations, and require significant judgment to apply. The Company is subject to U.S. federal, state and local tax examinations by tax authorities for all prior tax years since incorporation. The Company does not anticipate significant changes to its current uncertain tax positions through December 31, 2016.

The Company recognizes any interest and/or penalties related to income tax matters as a component of income tax expense.  As of December 31, 2015, there were no accrued interest and penalties related to uncertain tax positions.

13.Related‑Party Transactions

The chief executive officer of the Company received a monthly payment based on his use for Company business purposes of an apartment that he owned in New York City. For the years ended December 31, 2015, 2014 and 2013, the Company expensed $9,500, $22,800 and $22,642, respectively. The Company ceased making payments for this property following the sale of the apartment during the second quarter of 2015.

The Company entered into a full recourse promissory note with the Company’s chief executive officer, in April 2012. Pursuant to this note, which was secured by a stock pledge agreement, the Company loaned Dr. Rabinowitz $154,000. This interest only loan bore interest at a rate per annum of 1.15%, compounded annually. This loan, including all accrued interest, was repaid in full by Dr. Rabinowitz in May 2015.

The Company entered into a full recourse promissory note with Jonathan Sheena, the Company’s chief technology officer, in April 2012. Pursuant to this note, which was secured by a stock pledge agreement, the Company loaned Mr. Sheena $38,280. This interest only loan bore interest at a rate per annum of 1.15%, compounded annually. This loan, including all accrued interest, was repaid in full by Mr. Sheena in May 2015.

14.Net Loss per Share

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Prior to the Company’s IPO of its common stock, the Company’s convertible preferred stock was entitled to receive dividends, prior and in preference to any declaration or payment of any dividend on common stock and thereafter participate pro rata on an as converted basis with the common stock holders on any distributions to common stockholders. The convertible preferred shares were therefore considered to be participating securities. As a result, the Company calculated the net loss per share using the two-class method. Accordingly, the net loss attributable to common stockholders is derived from the net loss for the period and, in periods in which the Company has net income attributable to common stockholders, an adjustment is made for the noncumulative dividends and allocations of earnings to participating securities based on their outstanding shareholder rights. Under the two-class method, the net loss attributable to common stockholders is not allocated to the convertible preferred stock as the convertible preferred stock did not have a contractual obligation to share in the Company’s losses. The diluted net income per share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. In periods when the Company has incurred a net loss, convertible preferred stock, options to purchase common stock, common stock warrants and common stock subject to repurchase are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.

116

The following table provides the basic and diluted net loss per common share computations for the years ended December 31, 2015, 2014 and 2013.

	Year ended December 31,
(in thousands, except per share data)	2015		2014		2013
Basic and diluted loss per share:
Net loss	$	(70,275)	$	(5,152)	$	(37,110)
Net loss attributable to common shares, basic and diluted		(70,275)		(5,152)		(37,110)
Weighted-average common shares outstanding		27,687		6,670		6,093
Less:  weighted-average unvested common shares subject to repurchase		(1,483)		(1,870)		(2,252)
Weighted-average number of shares used in computing net loss per share, basic and diluted		26,204		4,800		3,841
Basic and diluted net loss per share	$	(2.68)	$	(1.07)	$	(9.66)

Potentially dilutive shares that were not included in the diluted per share calculations because they would be anti‑dilutive as of the years ended December 31, 2015, 2014 and 2013 were as follows:

	Year ended December 31,
	2015	2014	2013
Options to purchase common stock	9,316	8,450	4,406
Warrants to purchase common stock	377	864	410
Common stock subject to repurchase	1,307	1,690	2,077
Convertible preferred stock	—	31,397	27,048
	11,000	42,401	33,941

15.Geographic Information

The following table presents total revenues by geographic area based on the location of the Company’s customers:

	Year ended December 31,
(in thousands)	2015		2014		2013
United States	$	164,952	$	136,478	$	48,263
Americas, excluding U.S.		4,552		4,883		1,402
Europe, Middle East, India, Africa		15,437		13,098		4,275
Other		5,414		4,830		1,231
Total	$	190,355	$	159,289	$	55,171

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16.     Quarterly Financial Data (unaudited)

		Three months ended
		December 31,		September 30,		June 30,		March 31,
		(in thousands, except per share data)
2015
Operating results:
Total revenues	$	52,912	$	44,921	$	45,087	$	47,435
Cost of product revenues		31,814		30,456		25,732		24,843
Gross profit		21,098		14,465		19,355		22,592
Other costs and expenses		38,446		35,206		34,827		28,869
Interest expense and other income (expense), net		(5,612)		3,111		(4,209)		(3,727)
Net loss		(22,960)		(17,630)		(19,681)		(10,004)
Per share data:
Net income - basic and diluted	$	(0.47)	$	(0.39)	$	(3.58)	$	(1.89)
2014
Operating results:
Total revenues	$	49,884	$	46,274	$	35,836	$	27,295
Cost of product revenues		22,662		20,820		19,014		15,900
Gross profit		27,222		25,454		16,822		11,395
Other costs and expenses		22,849		20,675		18,027		18,677
Interest expense and other income (expense), net		(3,119)		(1,055)		691		(2,334)
Net income (loss)		1,254		3,724		(514)		(9,616)
Per share data:
Net income - basic	$	-	$	0.04	$	(0.11)	$	(2.09)
Net income - diluted		-		0.03		(0.11)		(2.09)

17.    Subsequent Events

None.

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ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A:CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2015. The term “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Based on the evaluation of our disclosure controls and procedures as of December 31, 2015, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Annual Report on Internal Control over Financial Reporting

This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

ITEM 9B.OTHER INFORMATION

None.

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PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item will be contained in our definitive proxy statement to be filed with the Securities and Exchange Commission in connection with our 2016 annual meeting of stockholders (the “Proxy Statement”), which we expect to file not later than 120 days after the end of our fiscal year ended December 31, 2015, and is incorporated in this report by reference.

ITEM 11.EXECUTIVE COMPENSATION

The information required by this item will be contained in the Proxy Statement, which we expect to file not later than 120 days after the end of our fiscal year ended December 31, 2015, and is incorporated in this report by reference.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item will be contained in the Proxy Statement, which we expect to file not later than 120 days after the end of our fiscal year ended December 31, 2015, and is incorporated in this report by reference.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item will be contained in the Proxy Statement, which we expect to file not later than 120 days after the end of our fiscal year ended December 31, 2015, and is incorporated in this report by reference.

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item will be contained in the Proxy Statement, which we expect to file not later than 120 days after the end of our fiscal year ended December 31, 2015, and is incorporated in this report by reference.

120

PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this Annual Report on Form 10-K:

(1) Financial Statements (included in Part II of this report):

· Report of Independent Registered Public Accounting Firm

· Balance Sheets

· Statement of Operations

· Statement of Stockholders’ Equity (Deficit)

· Statement of Cash Flows

· Notes to Financial Statements

(2) Financial Statement Schedules

All other financial statement schedules are omitted because the information is inapplicable or presented in the notes to the financial statements.

(b) Reference is made to the Exhibit Index accompanying this Annual Report on Form 10-K.

121

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Carlos, State of California, on this 23rd day of March, 2016.

/s/

Natera, Inc.

/  s /    Herm Rosenman

Herm Rosenman

Chief Financial Officer

122

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Matthew Rabinowitz and Herm Rosenman as his true and lawful attorney-in-fact and agent with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/  s /    Matthew Rabinowitz Matthew Rabinowitz	Chief Executive Officer, President and Chairman (Principal Executive Officer)	March 23, 2016
/  s /    Herm Rosenman Herm Rosenman	Chief Financial Officer (Principal Financial and Accounting Officer)	March 23, 2016
/  s /    Jonathan Sheena Jonathan Sheena	Chief Technology Officer and Director	March 23, 2016
/  s /    Roelof F. Botha Roelof F. Botha	Director	March 23, 2016
/  s /    Todd Cozzens Todd Cozzens	Director	March 23, 2016
/  s /    Edward C. Driscoll, Jr. Edward C. Driscoll, Jr.	Director	March 23, 2016
/  s /    James I. Healy James I. Healy	Director	March 23, 2016
/  s /    John Steuart John Steuart	Director	March 23, 2016

123

INDEX TO EXHIBITS

		Incorporated by Reference
Exhibit No.	Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
3.1	Amended and Restated Certificate of Incorporation of Natera, Inc.	8-K	001-37478	3.1	7/9/2015
3.2	Amended and Restated Bylaws of Natera, Inc.	8-K	001-37478	3.2	7/9/2015
4.1	Form of Common Stock Certificate	S-1/A	333-204622	4.1	6/22/2015
4.2	Amended and Restated Investors' Rights Agreement, dated November 20, 2014.	S-1	333-204622	4.2	6/1/2015
10.1*	2007 Stock Plan and form of agreements thereunder.	S-1	333-204622	10.1	6/1/2015
10.2*	2015 Equity Incentive Plan and forms of agreements thereunder.					X
10.3*	2015 Employee Stock Purchase Plan.	S-1/A	333-204622	10.3	6/25/2015
10.4	Form of Indemnification Agreement, by and between Registrant and each of its directors and executive officers.	S-1/A	333-204622	10.4	6/22/2015
10.5	Sublease Agreement, dated December 13, 2011, by and between Registrant and Nektar Therapeutics, as amended January 31, 2012 and January 3, 2013.	S-1	333-204622	10.5	6/1/2015
10.6	Sublease Agreement, dated March 21, 2014, by and between Registrant and Intrexon Corporation.	S-1	333-204622	10.6	6/1/2015
10.7	Warrant, dated April 18, 2013, by and between Registrant and Royalty Opportunities S. à r.l.	S-1	333-204622	10.9	6/1/2015
10.8	Warrant, dated November 2, 2009, by and between Registrant and Silicon Valley Bank.	S-1	333-204622	10.10	6/1/2015
10.10	Form of Warrant to Purchase Common Stock.	S-1	333-204622	10.12	6/1/2015
10.11**	Supply Agreement, dated September 18, 2014, by and between Registrant and Illumina, Inc., as amended (conformed copy).	S-1/A	333-204622	10.13	6/30/2015
10.12*	Amended Employment Agreement, by and between Registrant and Matthew Rabinowitz, dated June 7, 2007.	S-1/A	333-204622	10.15	6/25/2015
10.13*	Amended Employment Agreement, by and between Registrant and Jonathan Sheena, dated June 7, 2007.	S-1/A	333-204622	10.16	6/25/2015
10.14*	Offer Letter, by and between Registrant and Herm Rosenman, dated January 17, 2014.	S-1/A	333-204622	10.17	6/25/2015
10.15*	Amended Compensation Program for Non-Employee Directors.	10-Q	001-37478	10.1	11/12/2015
10.16	UBS Credit Line Agreement, dated September 23, 2015, as amended.	10-Q	001-37478	10.2	11/12/2015

124

		Incorporated by Reference
Exhibit No.	Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
10.17*	Natera, Inc. Management Cash Incentive Plan.	10-Q	001-37478	10.3	11/12/2015
10.23	Lease, dated October 26, 2015, by and between Registrant and BMR-201 Industrial Road LP.					X
21.1	List of Subsidiaries of the Registrant.					X
23.1	Consent of Independent Registered Public Accounting Firm.					X
24.1	Power of Attorney (see page 125 of this Annual Report on Form 10-K).					X
31.1	Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
32.1†	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
32.2†	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
101.INS	XBRL Instance Document.					X
101.SCH	XBRL Taxonomy Extension Schema Document.					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.					X

*Indicates a management contract or compensatory plan.

**   Portions of this exhibit (indicated by asterisks) have been omitted pursuant to an order granting confidential treatment. Omitted portions have been submitted separately to the Securities and Exchange Commission (SEC).

†The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K are not deemed filed with the SEC and are not to be incorporated by reference into any filing of Natera, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, regardless of any general incorporation language contained in any filing.

125

EX-10.2

Exhibit 10.2

Natera, Inc.

2015 Equity Incentive Plan

(As Adopted on June 18, 2015)

Natera, Inc.
2015 Equity Incentive Plan

ARTICLE 1. INTRODUCTION.

The Board adopted the Plan to become effectiveimmediately, although no Awards may be granted prior to theIPO Date.  The purpose of the Plan is to promote the long-term success of the Company and the creation of stockholder value by (a) encouraging Service Providers to focus on critical long-range corporate objectives, (b) encouraging the attraction and retention of Service Providers with exceptional qualifications and (c) linking Service Providers directly to stockholder interests through increased stock ownership.  The Plan seeks to achieve this purpose by providing for Awards in the form of Options (which may be ISOs or NSOs), SARs, Restricted Shares, Stock Units and Performance Cash Awards. Capitalized terms used in this Plan are defined in Article 14.

ARTICLE 2. ADMINISTRATION.

2.1 General

.  The Plan may be administered by the Board or one or more Committees.  Each Committee shall comply with rules and regulations applicable to it, including under the rules of any exchange on which shares of the Company’s common stock are traded, and shall have the authority and be responsible for such functions as have been assigned to it.

2.2 Section 162(m).  To the extent an Award is intended to qualify as “performance-based compensation” within the meaning of Code Section 162(m), the Plan will be administered by a Committee of two or more “outside directors” within the meaning of Code Section 162(m).

2.3 Section 16.  To the extent desirable to qualify transactions hereunder as exempt under Exchange Act Rule 16b-3, the transactions contemplated hereunder will be approved by the entire Board or a Committee of two or more “non-employee directors” within the meaning of Exchange Act Rule 16b-3.

2.4 Powers of Administrator.  Subject to the terms of the Plan, and in the case of a Committee, subject to the specific duties delegated to the Committee, the Administratorshall have the authority to (a) select the Service Providers who are to receive Awards under the Plan, (b) determine the type, number, vesting requirements and other features and conditions of such Awards, (c) determine whether and to what extent any Performance Goals have been attained, (d) interpret the Plan and Awards granted under the Plan, (e) make, amend and rescind rules relating to the Plan and Awards granted under the Plan, including rules relating to sub-plans established for the purposes of satisfying applicable foreign laws or for qualifying for favorable tax treatment under applicable foreign laws, (f)impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by a Participant of any Common Shares issued pursuant to an Award, including restrictions under an insider trading policy and restrictions as to the use of a specified brokerage firm for such resales, and (g) make all other decisions relating to the operation of the Plan and Awards granted under the Plan. 

\

2.5 Effect of Administrator’s Decisions.  The Administrator’sdecisions, determinations and interpretations shall be final and binding on all Participants and any other holders of Awards.

2.6 Governing Law.  The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware (except its choice-of-law provisions).

ARTICLE 3. SHARES AVAILABLE FOR GRANTS.

3.1 Basic Limitation.  Common Shares issued pursuant to the Plan may be authorized but unissued shares or treasury shares.  The aggregate number of Common Shares issued under the Plan shall not exceed the sum of (a) 3,451,495,  (b) the number of Common Shares reserved under the Predecessor Plan that are not issued or subject to outstanding awards under the Predecessor Plan on the IPO Date, (c) any Common Shares subject to outstanding options under the Predecessor Plan on the IPO Date that subsequently expire or lapse unexercised and Common Shares issued pursuant to awards granted under the Predecessor Plans that are outstanding on the IPO Date and that are subsequently forfeited to or repurchased by the Company and (d)the additional Common Shares described in Articles 3.2 and 3.3;  provided, however, that no more than 9,890,310Common Shares, in the aggregate, shall be added to the Plan pursuant to clauses (b) and (c).  The number of Common Shares that are subject to Stock Awards outstanding at any time under the Plan may not exceed the number of Common Shares that then remain available for issuance under the Plan.  The numerical limitations in this Article 3.1 shall be subject to adjustment pursuant to Article 9.

3.2 Annual Increase in Shares.  As of the first business day of each fiscal year of the Company during the term of the Plan, commencing in 2016 and ending in (and including) 2025,the aggregate number of .Common Shares that may be issued under the Plan shall automatically increase by a number equal to the leastof (a)4% of the total number of Common Shares actually issued and outstanding on the last business day of the prior fiscal year, (b) subject to adjustment pursuant to Article 9, 3,500,000Common Shares, or (c) a number of Common Shares determined by the Board.

3.3 Shares Returned to Reserve.  To the extent that Options, SARs or Stock Units are forfeited or expire for any other reason before being exercised or settled in full, the Common Shares subject to such Options, SARs or Stock Units shall again become available for issuance under the Plan.  If SARs are exercised or Stock Units are settled, then only the number of Common Shares (if any) actually issued to the Participant upon exercise of such SARs or settlement of such Stock Units, as applicable, shall reduce the number available under Article 3.1 and the balance shall again become available for issuance under the Plan.  If Restricted Shares or Common Shares issued upon the exercise of Options are reacquired by the Company pursuant to a forfeiture provision, repurchase right or for any other reason, then such Common Shares shall again become available for issuance under the Plan.  Common Shares applied to pay the Exercise Price of Options or to satisfy tax withholding obligations related to any Award shall again become available for

issuance under the Plan.  To the extent that an Award is settled in cash rather than Common Shares, the cash settlement shall not reduce the number of Shares available for issuance under the Plan. 

3.4 Awards Not Reducing Share Reserve in Article 3.1.  To the extent permitted under applicable stock exchange listing standards, any dividend equivalents paid or credited under the Plan with respect to Stock Units shall not be applied against the number of Common Shares that may be issued under the Plan, whether or not such dividend equivalents are converted into Stock Units.  In addition, Common Shares subject to Substitute Awards granted by the Company shall not reduce the number of Common Shares that may be issued under Article 3.1, nor shall shares subject to Substitute Awards again be available for Awards under the Plan in the event of any forfeiture, expiration or cash settlement of such Substitute Awards.

3.5 Code Section 162(m), Code Section 422 and Other Limits.Subject to adjustment in accordance with Article 9: 

(a) The maximum aggregate number of Common Shares subject to Options and SARsthat may be granted under this Plan during any fiscalyear to any one Participant shall not exceed 1,725,000, except that the Company may grant to a new Employee in the fiscal year in which his or her Service as an Employee first commences Options and/or SARsthat cover (in the aggregate) up to an additional 350,000Common Shares;

(b) The maximum aggregate number of Common Shares subject to Restricted Share awards and Stock Units that may be granted under this Plan during any fiscal year to any one Participant shall not exceed 1,500,000, except that the Company may grant to a new Employee in the fiscal year in which his or her Service as an Employee first commences Restricted Shares and/or Stock Units that cover (in the aggregate) up to an additional 300,000Common Shares;

(c) No Participant shall be paid more than $5,000,000in cash in any fiscal year pursuant to Performance Cash Awards granted under the Plan; and

(d) The aggregate grant date fair value of Awards granted to Outside Directors may not exceed $500,000 in any one fiscal year of the Company, except that the grant date fair value of Awards granted to newly appointed Outside Directors may not exceed $1,000,000 in the fiscal year of the Company in which such Outside Director is initially appointed to the Board.

(e) No more than13,341,805Common Sharesplus the additional Common Shares described in Article 3.2 may be issued under the Plan upon the exercise of ISOs.

ARTICLE 4. ELIGIBILITY.

4.1 Incentive Stock Options.  Only Employees who are common‑law employees of the Company, a Parent or a Subsidiary shall be eligible for the grant of ISOs.  In addition, an Employee who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company or any of its Parents or Subsidiaries shall not be eligible for the grant of an ISO unless the additional requirements set forth in Code Section 422(c)(5) are satisfied.

4.2 Other Awards.  Awards other than ISOs may only be granted to Service Providers.

2

ARTICLE 5. OPTIONS.

5.1 Stock Option Agreement.  Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company.  Such Option shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan.  The Stock Option Agreement shall specify whether the Option is intended to be an ISO or an NSO.  The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. 

5.2 Number of Shares.  Each Stock Option Agreement shall specify the number of Common Shares subject to the Option, which number shall adjust in accordance with Article 9. 

5.3 Exercise Price.  Each Stock Option Agreement shall specify the Exercise Price, which shall be such price as is determined by the Administrator in its discretion; provided, however, that unless an Option is intended to comply with Code Section 409A (and not, for the avoidance of doubt, be exempt from Code Section 409A), the Exercise Price of any Option granted to a Participant subject to taxation in the United States shall be not less than 100% of the Fair Market Value of a Common Share on the date of grant;  provided further, that the preceding clause shall not apply to an Option that is a Substitute Award granted in a manner that would satisfy the requirements of Code Section 409A and, if applicable, Code Section 424(a).

5.4 Exercisability and Term.  Each Stock Option Agreement shall specify the date or event when all or any installment of the Option is to become vested and/or exercisable.  The Stock Option Agreement shall also specify the term of the Option; provided that, except to the extent necessary to comply with applicable foreign law, the term of an Option shall in no event exceed 10 years from the date of grant.  A Stock Option Agreement may provide for accelerated vesting and/or exercisability upon certain specified events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee’s Service. 

5.5 Death of Optionee.  After an Optionee’s death, any vested and exercisable Options held by such Optionee may be exercised by his or her beneficiary or beneficiaries.  Each Optionee may designate one or more beneficiaries for this purpose by filing the prescribed form with the Company.  A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Optionee’s death.  If no beneficiary was designated or if no designated beneficiary survives the Optionee, then any vested and exercisable Options held by the Optionee may be exercised by his or her estate.

5.6 Modification or Assumption of Options.  Within the limitations of the Plan, the Administrator may modify, reprice, extend or assume outstanding options or may accept the cancellation of outstanding options (whether granted by the Company or by another issuer) in return for the grant of new Options for the same or a different number of shares and at the same or a different exercise price or in return for the grant of a different type of Award.  The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, impair his or her rights or obligations under such Option.

5.7 Buyout Provisions.  The Administrator may at any time (a) offer to buy out for a payment in cash or cash equivalents an Option previously granted or (b) authorize an Optionee to

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elect to cash out an Option previously granted, in either case at such time and based upon such terms and conditions as the Administrator shall establish.

5.8 Payment for Option Shares.  The entire Exercise Price of Common Shares issued upon exercise of Options shall be payable in cash or cash equivalents at the time when such Common Shares are purchased.  In addition, the Administrator may, in its sole discretion and to the extent permitted by applicable law, accept payment of all or a portion of the Exercise Price through any one or a combination of the following forms or methods:

(a) Subject to any conditions or limitations established by the Administrator, by surrendering, or attesting to the ownership of, Common Shares that are already owned by the Optionee with a  Fair Market Value on the date of surrender equal to the aggregate exercise price of the Common Shares as to which such Option will be exercised;

(b) By delivering (on a form prescribed by the Company) an irrevocable direction to a securities broker approved by the Company to sell all or part of the Common Shares being purchased under the Plan and to deliver all or part of the sales proceeds to the Company; 

(c) Subject to such conditions and requirements as the Administrator may impose from time to time, through a net exercise procedure; or

(d) Through any other form or method consistent with applicable laws, regulations and rules.

ARTICLE 6. STOCK APPRECIATION RIGHTS.

6.1 SAR Agreement.  Each grant of a SAR under the Plan shall be evidenced by a SAR Agreement between the Optionee and the Company.  Such SAR shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan.  The provisions of the various SAR Agreements entered into under the Plan need not be identical. 

6.2 Number of Shares.  Each SAR Agreement shall specify the number of Common Shares to which the SAR pertains, which number shall adjust in accordance with Article 9. 

6.3 Exercise Price.  Each SAR Agreement shall specify the Exercise Price, which shall in no event be less than 100% of the Fair Market Value of a Common Share on the date of grant.  The preceding sentence shall not apply to a SAR that is a Substitute Awardgranted in a manner that would satisfy the requirements of Code Section 409A.

6.4 Exercisability and Term.  Each SAR Agreement shall specify the date when all or any installment of the SAR is to become vested and exercisable.  The SAR Agreement shall also specify the term of the SAR; provided that except to the extent necessary to comply with applicable foreign law, the term of a SAR shall not exceed 10 years from the date of grant.  ASAR Agreement may provide for accelerated vesting and exercisability upon certain specified events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee’s Service. 

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6.5 Exercise of SARs.  Upon exercise of a SAR, the Optionee (or any person having the right to exercise the SAR after his or her death) shall receive from the Company (a) Common Shares, (b) cash or (c) a combination of Common Shares and cash, as the Administrator shall determine.  The amount of cash and/or the Fair Market Value of Common Shares received upon exercise of SARs shall, in the aggregate, not exceed the amount by which the Fair Market Value (on the date of surrender) of the Common Shares subject to the SARs exceeds the Exercise Price.  If, on the date when a SAR expires, the Exercise Price is less than the Fair Market Value on such date but any portion of such SAR has not been exercised or surrendered, then such SAR shall automatically be deemed to be exercised as of such date with respect to such portion.  ASAR Agreement may also provide for an automatic exercise of the SAR on an earlier date.

6.6 Death of Optionee.  After an Optionee’s death, any vested and exercisable SARs held by such Optionee may be exercised by his or her beneficiary or beneficiaries.  Each Optionee may designate one or more beneficiaries for this purpose by filing the prescribed form with the Company.  A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Optionee’s death.  If no beneficiary was designated or if no designated beneficiary survives the Optionee, then any vested and exercisable SARs held by the Optionee at the time of his or her death may be exercised by his or her estate.

6.7 Modification or Assumption of SARs.  Within the limitations of the Plan, the Administrator may modify, reprice, extend or assume outstanding SARs or may accept the cancellation of outstanding SARs (whether granted by the Company or by another issuer) in return for the grant of new SARs for the same or a different number of shares and at the same or a different exercise price or in return for the grant of a different type of Award.  The foregoing notwithstanding, no modification of a SAR shall, without the consent of the Optionee, impair his or her rights or obligations under such SAR.

ARTICLE 7. RESTRICTED SHARES.

7.1 Restricted Stock Agreement.  Each grant of Restricted Shares under the Plan shall be evidenced by a Restricted Stock Agreement between the recipient and the Company.  Such Restricted Shares shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan.  The provisions of the various Restricted Stock Agreements entered into under the Plan need not be identical.

7.2 Payment for Awards.  Restricted Shares may be sold or awarded under the Plan for such consideration as the Administrator may determine, including (without limitation) cash, cash equivalents, property, cancellation of other equity awards, full-recourse promissory notes, past services and future services, and such other methods of payment as are permitted by applicable law. 

7.3 Vesting Conditions.  Each Award of Restricted Shares may or may not be subject to vesting and/or other conditions as the Administrator may determine.  Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Restricted Stock Agreement.  Such conditions, at the Administrator’s discretion, may include one or more Performance Goals.  A Restricted Stock Agreement may provide for accelerated vesting upon certain specified events.

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7.4 Voting and Dividend Rights.  The holders of Restricted Shares awarded under the Plan shall have the same voting, dividend and other rights as the Company’s other stockholders, unless the Administrator otherwise provides.  A Restricted Stock Agreement, however, may require that any cash dividends paid on Restricted Shares (a) be accumulated and paid when such Restricted Shares vest, or (b) be invested in additional Restricted Shares.  Such additional Restricted Shares shall be subject to the same conditions and restrictions as the shares subject to the Stock Award with respect to which the dividends were paid.  In addition, unless the Administrator provides otherwise, if any dividends or other distributions are paid in Common Shares, such Common Shares shall be subject to the same restrictions on transferability and forfeitability as the Restricted Shares with respect to which they were paid.

ARTICLE 8. STOCK UNITS.

8.1 Stock Unit Agreement.  Each grant of Stock Units under the Plan shall be evidenced by a Stock Unit Agreement between the recipient and the Company.  Such Stock Units shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan.  The provisions of the various Stock Unit Agreements entered into under the Plan need not be identical. 

8.2 Payment for Awards.  To the extent that an Award is granted in the form of Stock Units, no cash consideration shall be required of the Award recipients.

8.3 Vesting Conditions.  Each Award of Stock Units may or may not be subject to vesting, as determined by the Administrator.  Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Stock Unit Agreement.  Such conditions, at the Administrator’s discretion, may include one or more Performance Goals.  A Stock Unit Agreement may provide for accelerated vesting upon certain specified events. 

8.4 Voting and Dividend Rights.  The holders of Stock Units shall have no voting rights.  Prior to settlement or forfeiture, Stock Units awarded under the Plan may, at the Administrator’s discretion, provide for a right to dividend equivalents.  Such right entitles the holder to be credited with an amount equal to all cash dividends paid on one Common Share while the Stock Unit is outstanding.  Dividend equivalents may be converted into additional Stock Units.  Settlement of dividend equivalents may be made in the form of cash, in the form of Common Shares, or in a combination of both.  Prior to distribution, any dividend equivalents shall be subject to the same conditions and restrictions as the Stock Units to which they attach.

8.5 Form and Time of Settlement of Stock Units.  Settlement of vested Stock Units may be made in the form of (a) cash, (b) Common Shares or (c) any combination of both, as determined by the Administrator.  The actual number of Stock Units eligible for settlement may be larger or smaller than the number included in the original Award, based on predetermined performance factors, including Performance Goals.  Methods of converting Stock Units into cash may include (without limitation) a method based on the average Fair Market Value of Common Shares over a series of trading days.  Vested Stock Units shall be settled in such manner and at such time(s) as specified in the Stock Unit Agreement.  Until an Award of Stock Units is settled, the number of such Stock Units shall be subject to adjustment pursuant to Article 9.

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8.6 Death of Recipient.  Any Stock Units that become payable after the recipient’s death shall be distributed to the recipient’s beneficiary or beneficiaries.  Each recipient of Stock Units under the Plan maydesignate one or more beneficiaries for this purpose by filing the prescribed form with the Company.  A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Award recipient’s death.  If no beneficiary was designated or if no designated beneficiary survives the Award recipient, then any Stock Units that become payable after the recipient’s death shall be distributed to the recipient’s estate.

8.7 Modification or Assumption of Stock Units.  Within the limitations of the Plan, the Administrator may modify or assume outstanding stock units or may accept the cancellation of outstanding stock units (whether granted by the Company or by another issuer) in return for the grant of new Stock Units for the same or a different number of shares or in return for the grant of a different type of Award.  The foregoing notwithstanding, no modification of a Stock Unit shall, without the consent of the Participant, impair his or her rights or obligations under such Stock Unit.

8.8 Creditors’ Rights.  A holder of Stock Units shall have no rights other than those of a general creditor of the Company.  Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Stock Unit Agreement.

ARTICLE 9. ADJUSTMENTS; DISSOLUTIONS AND LIQUIDATIONS; CORPORATE TRANSACTIONS.

9.1 Adjustments.  In the event of a subdivision of the outstanding Common Shares, a declaration of a dividend payable in Common Shares,  a combination or consolidation of the outstanding Common Shares (by reclassification or otherwise) into a lesser number of Common Shares or any other increase or decrease in the number of issued Common Shares effected without receipt of consideration by the Company, proportionate adjustments shall automatically be made to the following:

(a) The number and kind of shares available for issuance under Article 3, including the numerical share limits in Articles 3.1, 3.2 and 3.5;

(b) The number and kind of shares covered by each outstanding Option, SAR and Stock Unit; or

(c) The Exercise Price applicable to each outstanding Option and SAR, and the repurchase price, if any, applicable to Restricted Shares.

In the event of a declaration of an extraordinary dividend payable in a form other than Common Shares in an amount that has a material effect on the price of Common Shares, a recapitalization, a spin-off or a similar occurrence, the Administratormay make such adjustments as it, in its sole discretion, deems appropriate to the foregoing.  Any adjustment in the number of shares subject to an Award under this Article 9.1 shall be rounded down to the nearest whole share, although the Administrator in its sole discretion may make a cash payment in lieu of a fractional share.  Except as provided in this Article 9, a Participant shall have no rights by reason of any issuance by the Company of stock of any class or securities convertible into stock of any class, any subdivision or

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consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class.

9.2 Dissolution or Liquidation.  To the extent not previously exercised or settled, Options, SARs and Stock Units shall terminate immediately prior to the dissolution or liquidation of the Company.

9.3 Corporate Transactions.  In the event that the Company is a party to a merger, consolidation, or a Change in Control (other than one described in Article 14.6(d)), all Common Shares acquired under the Plan and all Awards outstanding on the effective date of the transaction shall be treated in the manner described in the definitive transaction agreement (or, in the event the transaction does not entail a definitive agreement to which the Company is party, in the manner determined by the Administrator, with such determination having final and binding effect on all parties), which agreement or determination need not treat all Awards (or portions thereof) in an identical manner. Unless an Award Agreement provides otherwise, the treatment specified in the transaction agreement or by the Administrator may include (without limitation) one or more of the following with respect to each outstanding Award:

(a) The continuation of such outstanding Award by the Company (if the Company is the surviving entity);

(b) The assumption of such outstanding Award by the surviving entity or its parent, provided that the assumption of an Option or a  SAR shall comply with applicable tax requirements;

(c) The substitution by the surviving entity or its parent of an equivalent award for such outstanding Award (including, but not limited to, an award to acquire the same consideration paid to the holders of Common Shares in the transaction), provided that the substitution of an Option or a  SAR shall comply with applicable tax requirements;

(d) The cancellation of outstanding Awardswithout payment of any consideration. Optionees shall be able to exercise outstanding Options and SARs, to the extent such Options and SARs are then vested or become vested as of the effective time of the transaction, during a period of not less than five full business days preceding the closing date of the transaction, unless (i) a shorter period is required to permit a timely closing of the transaction and (ii) such shorter period still offers the Optionees a reasonable opportunity to exercise such Options and SARs.  Any exercise of such Options and SARs during such period may be contingent on the closing of the transaction;

(e) The cancellation of such Award and a payment to the Participant with respect to each share subject to the portion of the Award that is vested or becomes vested as of the effective time of the transaction equal to the excess of (A) the value, as determined by the Administrator in its absolute discretion, of the property (including cash) received by the holder of a Common Share as a result of the transaction, over (if applicable) (B) the per-share Exercise Price of such Award

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(such excess, if any, the “Spread”).  Such payment shall be made in the form of cash, cash equivalents, or securities of the surviving entity or its parent having a value equal to the Spread.  In addition, any escrow, holdback, earn-out or similar provisions in the transaction agreement may apply to such payment to the same extent and in the same manner as such provisions apply to the holders of Common Shares, but only to the extent the application of such provisions does not adversely affect the status of the Award as exempt from Code Section 409A.  If the Spread applicable to an Award (whether or not vested) is zero or a negative number, then the Award may be cancelled without making a payment to the Participant. In the event that a Stock Unit is subject to Code Section 409A, the payment described in this clause (e) shall be made on the settlement date specified in the applicable Stock Unit Agreement, provided that settlement may be accelerated in accordance with Treasury Regulation Section 1.409A-3(j)(4);  or

(f) The assignment of any reacquisition or repurchase rights held by the Company in respect of an Award of Restricted Shares to the surviving entity or its parent, with corresponding proportionate adjustments made to the price per share to be paid upon exercise of any such reacquisition or repurchase rights.

For avoidance of doubt, the Administrator shall have the discretion, exercisable either at the time an Award is granted or at any time while the Award remains outstanding, to provide for the acceleration of vesting upon the occurrence of a Change in Control, whether or not the Award is to be assumed or replaced in the transaction, or in connection with a termination of the Participant’s Service following a transaction.

Any action taken under this Article 9.3 shall either preserve an Award’s status as exempt from Code Section 409A or comply with Code Section 409A.

ARTICLE 10. OTHER AWARDS.

10.1 Performance Cash Awards.  A Performance Cash Award is a cash award that may be granted subject to the attainment of specified Performance Goals during a Performance Period.  A Performance Cash Award may also require the completion of a specified period of continuous Service.  The length of the Performance Period, the Performance Goals to be attained during the Performance Period, and the degree to which the Performance Goals have been attained shall be determined conclusively by the Administrator.  Each Performance Cash Award shall be set forth in a written agreement or in a resolution duly adopted by the Administrator which shall contain provisions determined by the Administrator and not inconsistent with the Plan.  The terms of various Performance Cash Awards need not be identical. 

10.2 Other Awards.  Subject in all events to the limitations under Article 3 above as to the number of Common Shares available for issuance under this Plan, the Company may grant other forms of equity-based awards not specifically described herein and may grant awards under other plans or programs, where such awards are settled in the form of Common Shares issued under this Plan.  Such Common Shares shall be treated for all purposes under the Plan like Common Shares issued in settlement of Stock Units and shall, when issued, reduce the number of Common Shares available under Article 3.

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ARTICLE 11. LIMITATION ON RIGHTS.

11.1 Retention Rights.  Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain a Service Provider.  The Company and its Parents, Subsidiaries and Affiliates reserve the right to terminate the Service of any Service Provider at any time, with or without cause, subject to applicable laws, the Company’s certificate of incorporation and by-laws and a written employment agreement (if any).

11.2 Stockholders’ Rights.  Except as set forth in Article 7.4 or 8.4 above, a Participant shall have no dividend rights, voting rights or other rights as a stockholder with respect to any Common Shares covered by his or her Award prior to the time when a stock certificate for such Common Shares is issued or, if applicable, the time when he or she becomes entitled to receive such Common Shares by filing any required notice of exercise and paying any required Exercise Price.  No adjustment shall be made for cash dividends or other rights for which the record date is prior to such time, except as expressly provided in the Plan.

11.3 Regulatory Requirements.  Any other provision of the Plan notwithstanding, the obligation of the Company to issue Common Shares under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be required.  The Company reserves the right to restrict, in whole or in part, the delivery of Common Shares pursuant to any Award prior to the satisfaction of all legal requirements relating to the issuance of such Common Shares, to their registration, qualification or listing or to an exemption from registration, qualification or listing.  The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed necessary by the Company’s counsel to be necessary to the lawful issuance and sale of any Common Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Common Shares as to which such requisite authority will not have been obtained.

11.4 Transferability of Awards.The Administrator may, in its sole discretion, permit transfer of an Award in a manner consistent with applicable law.  Unless otherwise determined by the Administrator, Awards shall be transferable by a Participant only by (a) beneficiary designation, (b) a will or (c) the laws of descent and distribution;  provided that, in any event, an ISO may only be transferred by will or by the laws of descent and distribution and may be exercised during the lifetime of the Optionee only by the Optionee or by the Optionee’s guardian or legal representative.

11.5 Other Conditions andRestrictions on Common Shares.  Any Common Shares issued under the Plan shall be subject to such forfeiture conditions, rights of repurchase, rights of first refusal, other transfer restrictions and such other terms and conditions as the Administrator may determine.  Such conditions and restrictions shall be set forth in the applicable Award Agreement and shall apply in addition to any restrictions that may apply to holders of Common Shares generally.  In addition, Common Shares issued under the Plan shall be subject to such conditions and restrictions imposed either by applicable law or by Company policy, as adopted from time to time, designed to ensure compliance with applicable law or laws with which the Company determines in its sole discretion to comply including in order to maintain any statutory, regulatory or tax advantage.

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ARTICLE 12. TAXES.

12.1 General.  It is a condition to each Award under the Plan that a Participant or his or her successor shall make arrangements satisfactory to the Company for the satisfaction of any federal, state, local or foreign withholding tax obligations that arise in connection with any Award granted under the Plan.  The Company shall not be required to issue any Common Shares or make any cash payment under the Plan unless such obligations are satisfied.

12.2 Share Withholding.  To the extent that applicable law subjects a Participant to tax withholding obligations, the Administrator may permit such Participant to satisfy all or part of such obligations by having the Company withhold all or a portion of any Common Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Common Shares that he or she previously acquired.  Such Common Shares shall be valued on the date when they are withheld or surrendered.  Any payment of taxes by assigning Common Shares to the Company may be subject to restrictions including any restrictions required by SEC, accounting or other rules.

12.3 Section 162(m) Matters  The Administrator, in its sole discretion, may determine whether an Award is intended to qualify as “performance-based compensation” within the meaning of Code Section 162(m).  The Administrator may grant Awards that are based on Performance Goals but that are not intended to qualify as performance-based compensation.  With respect to any Award that is intended to qualify as performance-based compensation, the Administrator shall designate the Performance Goal(s) applicable to, and the formula for calculating the amount payable under, an Award within 90 days following commencement of the applicable Performance Period (or such earlier time as may be required under Code Section 162(m)), and in any event at a time when achievement of the applicable Performance Goal(s) remains substantially uncertain.  Prior to the payment of any Award that is intended to constitute performance-based compensation, the Administrator shall certify in writing whether and the extent to which the Performance Goal(s) were achieved for such Performance Period.  The Administrator shall have the right to reduce or eliminate (but not to increase) the amount payable under an Award that is intended to constitute performance-based compensation.

12.4 Section 409A Matters.  Except as otherwise expressly set forth in an Award Agreement, it is intended that Awards granted under the Plan either be exempt from, or comply with, the requirements of Code Section 409A.  To the extent an Award is subject to Code Section 409A (a “409A Award”), the terms of the Plan, the Award and any written agreement governing the Award shall be interpreted to comply with the requirements of Code Section 409A so that the Award is not subject to additional tax or interest under Code Section 409A, unless the Administrator expressly provides otherwise.  A 409A Award shall be subject to such additional rules and requirements as specified by the Administrator from time to time in order for it to comply with the requirements of Code Section 409A.  In this regard, if any amount under a 409A Award is payable upon a “separation from service” to an individual who is considered a “specified employee” (as each term is defined under Code Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the Participant’s separation from service or (ii) the Participant’s death, but only to the extent such delay is necessary to prevent such payment from being subject to Code Section 409A(a)(1). 

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12.5 Limitation on Liability.  Neither the Company nor any person serving as Administrator shall have any liability to a Participant in the event an Award held by the Participant fails to achieve its intended characterization under applicable tax law.

ARTICLE 13. FUTURE OF THE PLAN.

13.1 Term of the Plan.  The Plan, as set forth herein, shall become effective on the date of its adoption by the Board, subject to approval of the Company’s stockholders under Article 13.3 below.  The Plan shall terminate automatically 10 years after the later of (a) the date when the Board adopted the Plan or (b) the date when the Board approved the most recent increase in the number of Common Shares reserved under Article 3 that was also approved by the Company’s stockholders. 

13.2 Amendment or Termination.  The Board may, at any time and for any reason, amend or terminate the Plan.  No Awards shall be granted under the Plan after the termination thereof.  The termination of the Plan, or any amendment thereof, shall not affect any Award previously granted under the Plan.

13.3 Stockholder Approval.  To the extent required by applicable law, the Plan will be subject to the approval of the Company’s stockholders within 12 months of its adoption date.  An amendment of the Plan shall be subject to the approval of the Company’s stockholders only to the extent required by applicable laws, regulations or rules. 

ARTICLE 14. DEFINITIONS.

14.1 “Administrator” means the Board or any Committee administering the Plan in accordance with Article 2.

14.2 “Affiliate” means any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries own not less than 50% of such entity.

14.3 “Award” means any award granted under the Plan, including as an Option, a  SAR, a  Restricted Share, a Stock Unit or a Performance Cash Award.

14.4 “Award Agreement” means a Stock Option Agreement, an SAR Agreement, a Restricted Stock Agreement, a Stock Unit Agreement or such other agreement evidencing an Award granted under the Plan.

14.5 “Board” means the Company’s Board of Directors, as constituted from time to time and, where the context so requires, reference to the “Board” may refer to a Committee to whom the Board has delegated authority to administer any aspect of this Plan.

14.6 “Change in Control” means:

(a) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total voting power represented by the Company’s then-outstanding voting securities;

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(b) The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets;

(c) The consummation of a merger or consolidation of the Company with or into any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation;  or

(d) Individuals who are members of the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the members of the Board over a period of 12 months; provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall, for purposes of this Plan, be considered as a member of the Incumbent Board.

A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.In addition, if a Change in Control constitutes a payment event with respect to any Award which provides for a deferral of compensation and is subject to Code Section 409A, then notwithstanding anything to the contrary in the Plan or applicable Award Agreement the transaction with respect to such Award must also constitute a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) to the extent required by Code Section 409A. 

14.7 “Code” means the Internal Revenue Code of 1986, as amended.

14.8 “Committee” means a committee of one or more members of the Board, or of other individuals satisfying applicable laws, appointed by the Board to administer the Plan. 

14.9 “Common Share” means one share of the common stock of the Company.

14.10 “Company” means Natera, Inc., a Delaware corporation.

14.11 “Consultant” means a consultant or adviser who provides bona fide services to the Company, a Parent, a Subsidiary or an Affiliate as an independent contractor and who qualifies as a consultant or advisor under Instruction A.1.(a)(1) of Form S-8 under the Securities Act.

14.12 “Employee” means a common‑law employee of the Company, a Parent, a Subsidiary or an Affiliate.

14.13 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

14.14 “Exercise Price,” in the case of an Option, means the amount for which one Common Share may be purchased upon exercise of such Option, as specified in the applicable

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Stock Option Agreement.  “Exercise Price,” in the case of a SAR, means an amount, as specified in the applicable SAR Agreement, which is subtracted from the Fair Market Value of one Common Share in determining the amount payable upon exercise of such SAR.

14.15 “Fair Market Value” means the closing price of a Common Share on any established stock exchange or a national market system on the applicable date or, if the applicable date is not a trading day, on the last trading day prior to the applicable date, as reported in a source that the Administrator deems reliable.  If Common Shares are not traded on an established stock exchange or a national market system, the Fair Market Value shall be determined by the Administrator in good faith on such basis as it deems appropriate.  The Administrator’s determination shall be conclusive and binding on all persons.

14.16 “IPO Date” means the effective date of the registration statement filed by the Company with the Securities and Exchange Commission for its initial offering of Common Stock to the public.

14.17 “ISO” means an incentive stock option described in Code Section 422(b).

14.18 “NSO” means a stock option not described in Code Sections 422 or 423.

14.19 “Option” means an ISO or NSO granted under the Plan and entitling the holder to purchase Common Shares.

14.20 “Optionee” means an individual or estate holding an Option or SAR.

14.21 “Outside Director” means a member of the Board who is not an Employee.

14.22 “Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.  A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.

14.23 “Participant” means an individual or estate holding an Award.

14.24 “Performance Cash Award” means an award of cash granted under Article 10.1 of the Plan.

14.25 “Performance Goal”means a goal established by the Administrator for the applicable Performance Period based on one or more of the performance criteria set forth in Appendix A.  Depending on the performance criteria used, a Performance Goal may be expressed in terms of overall Company performance or the performance of a business unit, division, Subsidiary, Affiliate or an individual.  A Performance Goal may be measured either in absolute terms or relative to the performance of one or more comparable companies or one or more relevant indices.  The Administrator may adjust the results under any performance criterion to exclude any of the following events that occurs during a Performance Period: (a) asset write-downs, (b) litigation, claims, judgments or settlements, (c) the effect of changes in tax laws, accounting

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principles or other laws or provisions affecting reported results, (d) accruals for reorganization and restructuring programs, (e) extraordinary, unusual or non-recurring items, (f) exchange rate effects for non-U.S. dollar denominated net sales and operating earnings, or (g) statutory adjustments to corporate tax rates; provided, however, that if an Award is intended to qualify as “performance-based compensation” within the meaning of Code Section 162(m), such adjustment(s) shall only be made to the extent consistent with Code Section 162(m).

14.26 “Performance Period” means a period of time selected by the Administrator over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to a Performance Cash Award or an Award of Restricted Shares or Stock Units that vests based on theachievement of Performance Goals.  Performance Periods may be of varying and overlapping duration, at the discretion of the Administrator.

14.27 “Plan” means this Natera, Inc.2015 Equity Incentive Plan, as amended from time to time.

14.28 “Predecessor Plan” means the Company’s  2007 Stock Plan, as amended.

14.29 “Restricted Share” means a Common Share awarded under the Plan.

14.30 “Restricted Stock Agreement” means the agreement between the Company and the recipient of a Restricted Share that contains the terms, conditions and restrictions pertaining to such Restricted Share.

14.31 “SAR” means a stock appreciation right granted under the Plan.

14.32 “SAR Agreement” means the agreement between the Company and an Optionee that contains the terms, conditions and restrictions pertaining to his or her SAR.

14.33 “Securities Act” means the Securities Act of 1933, as amended.

14.34 “Service” means service as an Employee, Outside Director or Consultant.

14.35 “Service Provider” means any individual who is an Employee, Outside Director or Consultant.

14.36 “Stock Award” means any award of an Option, a SAR, a Restricted Share or a Stock Unit under the Plan.

14.37 “Stock Option Agreement” means the agreement between the Company and an Optionee that contains the terms, conditions and restrictions pertaining to his or her Option.

14.38 “Stock Unit” means a bookkeeping entry representing the equivalent of one Common Share, as awarded under the Plan.

15

14.39 “Stock Unit Agreement” means the agreement between the Company and the recipient of a Stock Unit that contains the terms, conditions and restrictions pertaining to such Stock Unit.

14.40 “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.  A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date

14.41 “Substitute Awards” means Awards or Common Shares issued by the Company in assumption of, or substitution or exchange for, Awards previously granted, or the right or obligation to make future awards, in each case by a corporation acquired by the Company or any Affiliate or with which the Company or any Affiliate combines to the extent permitted by NASDAQ Marketplace Rule 5635 or any successor thereto.

16

Appendix A

Performance Criteria

The Administrator may establish Performance Goals derived from one or more of the following criteria when it makes Awards of Restricted Shares or Stock Units that vest entirely or in part on the basis of performance or when it makes Performance Cash Awards:

· Earnings (before or after taxes)	· Sales or revenue
· Earnings per share	· Expense or cost reduction
· Earnings before interest, taxes and depreciation	· Working capital
· Earnings before interest, taxes, depreciation and amortization	· Economic value added (or an equivalent metric)
· Total stockholder return	· Market share
· Return on equity or average stockholders’ equity	· Cash flow or cash balance
· Return on assets, investment or capital employed	· Operating cash flow
· Operating income	· Cash flow per share
· Gross margin	· Share price
· Operating margin	· Debt reduction
· Net operating income	· Customer satisfaction
· Net operating income after tax	· Stockholders’ equity
· Regulatory approvals	· Employee survey results
· Return on operating revenue	· Development and launch of new products
· To the extent that an Award is not intended to comply with Code Section 162(m), other measures of performance selected by the Administrator.

Natera, Inc.
2015 Equity Incentive Plan

Notice of Stock Option Grant

You have been granted the following option to purchase shares of the common stock of Natera, Inc. (the “Company”):

Name of Optionee:«Name»

Total Number of Shares:«TotalShares»

Type of Option:«ISO»Incentive Stock Option

«NSO»Nonstatutory Stock Option

Exercise Price per Share:$«PricePerShare»

Date of Grant:«DateGrant»

Vesting Commencement Date:«VestDay»

Vesting Schedule:This option vests and becomes exercisable with respect to the first «CliffPercent»% of the shares subject to this option when you complete «CliffPeriod» months of continuous “Service” (as defined in the Plan) from the Vesting Commencement Date.  Thereafter, this option vests and becomes exercisable with respect to an additional «Percent»% of the shares subject to this option when you complete each additional «IncrementPeriod» month of continuous Service.

For all purposes applicable to this option, “Service” means your continuous service as an Employee or Consultant.

Expiration Date:«ExpDate».  This option expires earlier if your Service terminates earlier, as described in the Stock Option Agreement, and may terminate earlier in connection with certain corporate transactions as described in Article 9 of the Plan.

You and the Company agree that this option is granted under and governed by the terms and conditions of the Company’s 2015 Equity Incentive Plan (the “Plan”) and the Stock Option Agreement, both of which are attached to, and made a part of, this document.

You further agree to accept by email all documents relating to the Plan or this option (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a website maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a website, it will notify you by email. 

You further agree to comply with the Company’s Insider Trading Policy when selling shares of the Company’s common stock.

OptioneeNatera, Inc.

By:

Title:

2

Natera, Inc.
2015 Equity Incentive Plan

Stock Option Agreement

Grant of Option	Subject to all of the terms and conditions set forth in the Notice of Stock Option Grant, this Stock Option Agreement (the “Agreement”) and the Plan, the Company has granted you an option to purchase up to the total number of shares specified in the Notice of Stock Option Grant at the exercise price indicated in the Notice of Stock Option Grant.  All capitalized terms used in this Agreement shall have the meanings assigned to them in this Agreement, the Notice of Stock Option Grant or the Plan.
Tax Treatment	This option is intended to be an incentive stock option under Section 422 of the Code or a nonstatutory stock option, as provided in the Notice of Stock Option Grant.  However, even if this option is designated as an incentive stock option in the Notice of Stock Option Grant, it shall be deemed to be a nonstatutory stock option to the extent it does not qualify as an incentive stock option under federal tax law, including under the $100,000 annual limitation under Section 422(d) of the Code.
Vesting	This option vests and becomes exercisable in accordance with the vesting schedule set forth in the Notice of Stock Option Grant.  In no event will this option vest or become exercisable for additional shares after your Service has terminated for any reason.
Term	This option expires in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Date of Grant, as shown in the Notice of Stock Option Grant.  (This option will expire earlier if your Service terminates, as described below, and this option may be terminated earlier as provided in Article 9 of the Plan.)
Termination of Service	If your Service terminates for any reason, this option will expire immediately to the extent the option is unvested as of your termination date and does not vest as a result of your termination of Service. The Company determines when your Service terminates for all purposes of this option.
Regular Termination	If your Service terminates for any reason except death or total and permanent disability, then this option, to the extent vested as of your termination date, will expire at the close of business at Company headquarters on the date three months after your termination date.

Death	If you die before your Service terminates, then this option will expire at the close of business at Company headquarters on the date 12 months after the date of death.
Disability	If your Service terminates because of your total and permanent disability, then this option will expire at the close of business at Company headquarters on the date 12 months after your termination date. For all purposes under this Agreement, “total and permanent disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year.
Leaves of Absence and Part-Time Work	For purposes of this option, your Service does not terminate when you go on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing and if continued crediting of Service is required by applicable law, the Company’s leave of absence policy, or the terms of your leave.  However, your Service terminates when the approved leave ends, unless you immediately return to active work. If you go on a leave of absence, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company’s leave of absence policy or the terms of your leave.  If you commence working on a part-time basis, the Company may adjust the vesting schedule so that the rate of vesting is commensurate with your reduced work schedule.
Notice Concerning Incentive Stock Option Treatment	Even if this option is designated as an incentive stock option in the Notice of Stock Option Grant, it ceases to qualify for favorable tax treatment as an incentive stock option to the extent that it is exercised: (a) more than three months after the date when you cease to be an Employee for any reason other than death or permanent and total disability (as defined in Section 22(e)(3) of the Code), (b) more than 12 months after the date when you cease to be an Employee by reason of permanent and total disability (as defined in Section 22(e)(3) of the Code) or (c) more than three months after the date when you have been on a leave of absence for three months, unless your reemployment rights following such leave were guaranteed by statute or by contract.
Restrictions on Exercise	The Company will not permit you to exercise this option if the issuance of shares at that time would violate any law or regulation.

4

Notice of Exercise

When you wish to exercise this option, you must notify the Company by filing the proper “Notice of Exercise” form at the address given on the form or, if the Company has designated a brokerage firm to administer the Plan, you must notify such brokerage firm in the manner such brokerage firm requires.  Your notice must specify how many shares you wish to purchase.  The notice will be effective when the Company receives it. However, if you wish to exercise this option by executing a same-day sale (as described below), you must follow the instructions of the Company and the broker who will execute the sale. If someone else wants to exercise this option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so. You may only exercise your option for whole shares.

Form of Payment

When you submit your notice of exercise, you must include payment of the option exercise price for the shares that you are purchasing.  To the extent permitted by applicable law, payment may be made in one (or a combination of two or more) of the following forms:

5

By delivering to the Company your personal check, a cashier’s check or a money order, or arranging for a wire transfer.

6

By delivering to the Company certificates for shares of Company stock that you own, along with any forms needed to effect a transfer of those shares to the Company.  The value of the shares, determined as of the effective date of the option exercise, will be applied to the option exercise price.  Instead of surrendering shares of Company stock, you may attest to the ownership of those shares on a form provided by the Company and have the same number of shares subtracted from the option shares issued to you. By giving to a securities broker approved by the Company irrevocable directions to sell all or part of your option shares and to deliver to the Company, from the sale proceeds, an amount sufficient to pay the option exercise price and any withholding taxes.  (The balance of the sale proceeds, if any, will be delivered to you.)  The directions must be given in accordance with the instructions of the Company and the broker.  This exercise method is sometimes called a “same-day sale.”

7

Withholding Taxes	You will not be allowed to exercise this option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the option exercise.  These arrangements include payment in cash. With the Company’s consent, these arrangements may also include (a) payment from the proceeds of the sale of shares through a Company-approved broker, (b) withholding shares of Company stock that otherwise would be issued to you when you exercise this option with a fair market value no greater than the minimum amount required to be withheld by law, (c) surrendering shares that you previously acquired with a fair market value no greater than the minimum amount required to be withheld by law, or (d) withholding cash from other compensation.  The fair market value of withheld or surrendered shares, determined as of the date when taxes otherwise would have been withheld in cash, will be applied to the withholding taxes.
Restrictions on Resale	You agree not to sell any option shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale.  This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
Transfer of Option	Prior to your death, only you may exercise this option.  You cannot transfer or assign this option.  For instance, you may not sell this option or use it as security for a loan.  If you attempt to do any of these things, this option will immediately become invalid.  You may, however, dispose of this option in your will or by means of a written beneficiary designation; provided, however, that your beneficiary or a representative of your estate acknowledges and agrees in writing in a form reasonably acceptable to the Company, to be bound by the provisions of this Agreement and the Plan as if such beneficiary of the estate were you. Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your former spouse, nor is the Company obligated to recognize your former spouse’s interest in your option in any other way.
Retention Rights	Your option or this Agreement does not give you the right to be retained by the Company, a Parent, Subsidiary, or an Affiliate in any capacity.  The Company and its Parents, Subsidiaries, and Affiliates reserve the right to terminate your Service at any time, with or without cause.
Stockholder Rights	You, or your estate or heirs, have no rights as a stockholder of the Company until you have exercised this option by giving the required notice to the Company, paying the exercise price, and satisfying any applicable withholding taxes.  No adjustments are made for dividends or other rights if the applicable record date occurs before you exercise this option, except as described in the Plan.

8

Recoupment Policy	This option, and the shares acquired upon exercise of this option, shall be subject to any Company recoupment policy in effect from time to time.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this option and the exercise price per share will be adjusted pursuant to the Plan.
Effect of Significant Corporate Transactions	If the Company is a party to a merger, consolidation, or certain change in control transactions, then this option will be subject to the applicable provisions of Article 9 of the Plan.
Applicable Law	This Agreement will be interpreted and enforced under the laws of the State of Delaware (without regard to its choice-of-law provisions).
The Plan and Other Agreements	The text of the Plan is incorporated in this Agreement by reference. This Plan, this Agreement and the Notice of Stock Option Grant constitute the entire understanding between you and the Company regarding this option.  Any prior agreements, commitments or negotiations concerning this option are superseded.  This Agreement may be amended only by another written agreement between the parties.

By signing the cover sheet of this Agreement, you agree to all of the terms and conditions described above and in the Plan.

Natera, Inc.
2015 Equity Incentive Plan
Notice of Stock Unit Award

You have been granted stock units representing shares of common stock of Natera, Inc. (the “Company”) on the following terms:

Name of Recipient:«Name»

Total Number of Stock Units Granted:«TotalUnits»

Date of Grant:«DateGrant»

Vesting Commencement Date:«VestDay»

Vesting Schedule:The first «CliffPercent»% of the stock units subject to this award will vest when you complete «CliffPeriod» months of continuous “Service” (as defined in the Plan) after the Vesting Commencement Date. Thereafter, an additional «IncrementPercent»% of the stock units subject to this award will vest when you complete each additional «IncrementPeriod»-month period of continuous Service.

For all purposes applicable to your stock units, “Service” means your continuous service as an Employee or Consultant.

You and the Company agree that these stock units are granted under and governed by the terms and conditions of the Company’s 2015 Equity Incentive Plan (the “Plan”) and the Stock Unit Agreement, both of which are attached to, and made a part of, this document.

You further agree to accept by email all documents relating to the Plan or this award (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a website maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a website, it will notify you by email.

You further agree to comply with the Company’s  Insider Trading Policy when selling shares of the Company’s  common stock.

RecipientNatera, Inc.

By:

Title:

Natera, Inc.
2015 Equity Incentive Plan

Stock Unit Agreement

Grant of Units	Subject to all of the terms and conditions set forth in the Notice of Stock Unit Award, this Stock Unit Agreement (the “Agreement”) and the Plan, the Company has granted to you the number of stock units set forth in the Notice of Stock Unit Award. All capitalized terms used in this Agreement shall have the meanings assigned to them in this Agreement, the Notice of Stock Unit Award or the Plan.
Payment for Units	No payment is required for the stock units that you are receiving.
Vesting	The stock units vest in accordance with the vesting schedule set forth in the Notice of Stock Unit Award.  No additional stock units will vest after your Service has terminated for any reason.
Forfeiture	If your Service terminates for any reason, then your stock units will be forfeited to the extent that they have not vested before the termination date and do not vest as a result of the termination of your Service.  This means that any stock units that have not vested under this Agreement will be cancelled immediately.  You receive no payment for stock units that are forfeited.  The Company determines when your Service terminates for all purposes of your stock units.
Leaves of Absence and Part-Time Work	For purposes of this award, your Service does not terminate when you go on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing and if continued crediting of Service is required by applicable law, the Company’s leave of absence policy, or the terms of your leave.  However, your Service terminates when the approved leave ends, unless you immediately return to active work.
	If you go on a leave of absence, then the vesting schedule specified in the Notice of Stock Unit Award may be adjusted in accordance with the Company’s leave of absence policy or the terms of your leave.  If you commence working on a part-time basis, the Company may adjust the vesting schedule so that the rate of vesting is commensurate with your reduced work schedule.

9

Settlement of Units

Each stock unit will be settled on the first Permissible Trading Day that occurs on or after the day when the stock unit vests.  However, each stock unit must be settled not later than March 15th of the calendar year following the calendar year in which the stock unit vests. At the time of settlement, you will receive one share of the Company’s common stock for each vested stock unit.  But the Company, at its sole discretion, may substitute an equivalent amount of cash if the distribution of stock is not reasonably practicable due to the requirements of applicable law.  The amount of cash will be determined on the basis of the market value of the Company’s common stock at the time of settlement. No fractional shares will be issued upon settlement.

“Permissible Trading Day”

“Permissible Trading Day” means a day that satisfies each of the following requirements: •The Nasdaq Global Market is open for trading on that day; •You are permitted to sell shares of the Company’s  common stock on that day without incurring liability under Section 16(b) of the Securities Exchange Act of 1934, as amended; •Either (a) you are not in possession of material non-public information that would make it illegal for you to sell shares of the Company’s  common stock on that day under Rule 10b-5 of the Securities and Exchange Commission or (b) Rule 10b5-1 of the Securities and Exchange Commission is applicable; •Under the Company’s  Insider Trading Policy, you are permitted to sell shares of the Company’s  common stock on that day; and •You are not prohibited from selling shares of the Company’s  common stock on that day by a written agreement between you and the Company or a third party.

Section 409A	This paragraph applies only if the Company determines that you are a “specified employee,” as defined in the regulations under Code Section 409A at the time of your “separation from service,” as defined in Treasury Regulation Section 1.409A-1(h) and it is determined that settlement of these stock units is not exempt from Code Section 409A.  If this paragraph applies, and the event triggering settlement is your “separation from service,” then any stock units that otherwise would have been settled during the first six months following your “separation from service” will instead be settled on the first business day following the earlier of (i) the six-month anniversary of your separation from service or (ii) your death. Each installment of stock units that vests is hereby designated as a separate payment for purposes of Code Section 409A.
Nature of Units	Your stock units are mere bookkeeping entries.  They represent only the Company’s unfunded and unsecured promise to issue shares of common stock (or distribute cash) on a future date.  As a holder of stock units, you have no rights other than the rights of a general creditor of the Company.
No Voting Rights or Dividends	Your stock units carry neither voting rights nor rights to cash dividends.  You have no rights as a stockholder of the Company unless and until your stock units are settled by issuing shares of the Company’s common stock.
Units Nontransferable	You may not sell, transfer, assign, pledge or otherwise dispose of any stock units.  For instance, you may not use your stock units as security for a loan.
Beneficiary Designation	You may dispose of your stock units in a written beneficiary designation.  A beneficiary designation must be filed with the Company on the proper form.  It will be recognized only if it has been received at the Company’s headquarters before your death.  If you file no beneficiary designation or if none of your designated beneficiaries survives you, then your estate will receive any vested stock units that you hold at the time of your death.

2

Withholding Taxes	No stock certificates (or their electronic equivalent) or cash will be distributed to you unless you have made arrangements satisfactory to the Company for the payment of any withholding taxes that are due as a result of the vesting or settlement of stock units.  You may satisfy these withholding obligations by paying cash to the Company.  At the discretion of the Company, these arrangements may also include (a) payment from the proceeds of the sale of shares through a Company-approved broker, (b) withholding shares of Company stock that otherwise would be issued to you when the stock units are settled with a fair market value no greater than the minimum amount required to be withheld by law, (c) surrendering shares that you previously acquired with a fair market value no greater than the minimum amount required to be withheld by law, or (d) withholding cash from other compensation. The fair market value of withheld or surrendered shares, determined as of the date when taxes otherwise would have been withheld in cash, will be applied to the withholding taxes. To the extent you fail to make satisfactory arrangements for the payment of any required withholding taxes, you will permanently forfeit the applicable stock units.
Restrictions on Resale	You agree not to sell any shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale.  This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
Retention Rights	Your award or this Agreement does not give you the right to be retained by the Company, a Parent, Subsidiary, or an Affiliate in any capacity.  The Company and its Parents, Subsidiaries, and Affiliates reserve the right to terminate your Service at any time, with or without cause.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of your stock units will be adjusted accordingly, as the Company may determine pursuant to the Plan.
Effect of Significant Corporate Transactions	If the Company is a party to a merger, consolidation, or certain change in control transactions, then your stock units will be subject to the applicable provisions of Article 9 of the Plan, provided that any action taken must either (a) preserve the exemption of your stock units from Code Section 409A or (b) comply with Code Section 409A.
Recoupment Policy	This award, and the shares acquired upon settlement of this award, shall be subject to any Company recoupment or clawback policy in effect from time to time.

3

Applicable Law	This Agreement will be interpreted and enforced under the laws of the State of Delaware (without regard to its choice-of-law provisions).
The Plan and Other Agreements	The text of the Plan is incorporated in this Agreement by reference.  The Plan, this Agreement and the Notice of Stock Unit Award constitute the entire understanding between you and the Company regarding this award.  Any prior agreements, commitments or negotiations concerning this award are superseded.  This Agreement may be amended only by another written agreement between the parties.

By signing the cover sheet of this Agreement, you agree to all of the
terms and conditions described above and in the Plan.

Natera, Inc.
2015 Equity Incentive Plan
Notice of Vested Stock Award

You have been granted the following award of shares of the common stock of Natera, Inc. (the “Company”):

Name of Recipient:

Total Number of Shares Granted:

Date of Grant:

Vesting Schedule:All of the shares subject to this award are fully vested at all times.

You and the Company agree that this award of shares is granted under and governed by the terms and conditions of the Company’s 2015 Equity Incentive Plan (the “Plan”) and the Vested Stock Agreement, both of which are attached to, and made a part of, this document.

You further agree to accept by email all documents relating to the Plan or this award (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a website maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a website, it will notify you by email. 

You further agree to comply with the Company’s Insider Trading Policy when selling shares of the Company’s common stock.

RecipientNatera, Inc.

By:

Title:

Natera, Inc.
2015 Equity Incentive Plan

Vested Stock Agreement

Grant of Shares	Subject to all of the terms and conditions set forth in the Notice of Vested Stock Award, this Vested Stock Agreement (the “Agreement”) and the Plan, the Company has granted you the total number of shares specified in the Notice of Vested Stock Award.
Payment for Shares	No payment is required for the shares that you are receiving.
Vesting	The shares subject to this award are fully vested at all times.
Voting and Dividend Rights	You will have all rights as a stockholder of the Company with respect to the shares subject to this award.  The shares will be subject to adjustment in the event of a stock split, stock dividend or similar change in Company stock on the same terms and conditions as apply to other holders of the Company’s common stock.
Stock Certificates	A stock certificate for the shares will be released to a broker for your account.  The Company will select the broker at its discretion.
Taxes	You will be required to pay all taxes that become due as a result of thegrant of the shares.
Restrictions on Resale	You agree not to sell any shares at a time when applicable laws, the Company’s Insider Trading Policy or other policies, or any agreement between the Company and its underwriters prohibit a sale.  This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
No Retention Rights	Neither this award nor this Agreement does not give you the right to be retained by the Company, a Parent, Subsidiary, or an Affiliate in any capacity.  The Company and its Parents, Subsidiaries, and Affiliates reserve the right to terminate your Service at any time, with or without cause.
Recoupment Policy	The shares granted pursuant to this Agreement shall be subject to any Company recoupment or clawback policy in effect from time to time.
Applicable Law	This Agreement will be interpreted and enforced under the laws of the State of Delaware (without regard to its choice-of-law provisions).

4

The Plan and Other Agreements The text of the Plan is incorporated in this Agreement by reference.  The Plan, this Agreement and the Notice of Vested Stock Award constitute the entire understanding between you and the Company regarding this award.  Any prior agreements, commitments or negotiations concerning this award are superseded.  This Agreement may be amended only by another written agreement between the parties.

By signing the cover sheet of this Agreement, you agree to all of the
terms and conditions described above and in the Plan.

5

EX-10.23

Exhibit 10.23

LEASE

by and between

BMR-201 INDUSTRIAL ROAD LP, a Delaware limited partnership

and

NATERA, INC.,

a Delaware corporation

Table of Contents

1.	Lease of Premises	1
2.	Basic Lease Provisions	1
3.	Term	4
4.	Possession and Commencement Date	5
5.	Condition of Premises	6
6.	Rentable Area	6
7.	Rent	7
8.	[Intentionally Omitted]	7
9.	Operating Expenses	7
10.	Taxes on Tenant's Property	13
11.	Security Deposit	13
12.	Use	16
13.	Rules and Regulations, CC&Rs, Parking Facilities and Common Area	19
14.	Project Control by Landlord	20
15.	Quiet Enjoyment	22
16.	Utilities and Services	22
17.	Alterations	26
18.	Repairs and Maintenance	29
19.	Liens	30
20.	Estoppel Certificate	31
21.	Hazardous Materials	31
22.	Odors and Exhaust	34
23.	Insurance; Waiver of Subrogation	35
24.	Damage or Destruction	39
25.	Eminent Domain	41
26.	Surrender	42
27.	Holding Over	43
28.	Indemnification and Exculpation	43
29.	Assignment or Subletting	45
30.	Subordination and Attornment	49
31.	Defaults and Remedies	49

32.	Bankruptcy	55
33.	Brokers	55
34.	Definition of Landlord	56
35.	Limitation of Landlord's Liability	56
36.	Joint and Several Obligations	57
37.	Representations	57
38.	Confidentiality	58
39.	Notices	58
40.	Miscellaneous	58
41.	Rooftop Installation Area	61
42.	Option to Extend Term	62
43.	Right of First Refusal	64
44.	Storage Area	65

LEASE

THIS LEASE (this “Lease”) is entered into as of this 26th day of October, 2015 (the “Execution Date”), by and between BMR-201 INDUSTRIAL ROAD LP, a Delaware limited partnership (“Landlord”), and NATERA, INC., a Delaware corporation (“Tenant”).

RECITALS

A.WHEREAS, Landlord owns certain real property (together with adjacent real property owned by Landlord, the “Property”) and the improvements on the Property located at 201Industrial Road, San Carlos, California, including the building located thereon (the “Building”);and

B.WHEREAS, Landlord wishes to lease to Tenant, and Tenant desires to lease from Landlord, certain premises (the “Premises”) comprised of approximately eighty-eight thousand three hundred ninety-two (88,392) square feet of Rentable Area on the fourth (4th) floor of the Building, pursuant to the terms and conditions of this Lease, as detailed below.

AGREEMENT

NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:

1.Lease of Premises.

1.1.Effective  on  the  applicable  Term  Commencement  Date  (as  defined  below), Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises, as shown on Exhibit A attached hereto, for use by Tenant in accordance with the Permitted Use (as defined below) and no other uses.  The Property and all landscaping, parking facilities, private drives and other improvements and appurtenances related thereto, including the Building, are hereinafter collectively referred to as the “Project.” All portions of the Project that are for the non-exclusive use of tenants of the Building, including driveways, sidewalks, parking areas, landscaped areas, service corridors, stairways, elevators, public restrooms and public lobbies, are hereinafter referred to as “Common Area.”

2.Basic Lease Provisions.  For convenience of the parties, certain basic provisions of this Lease are set forth herein.  The provisions set forth herein are subject to the remaining terms and conditions of this Lease and are to be interpreted in light of such remaining terms and conditions.

2.1.This Lease shall take effect upon the Execution Date and, except as specifically otherwise provided within this Lease, each of the provisions hereof shall be binding upon and inure to the benefit of Landlord and Tenant from the date of execution and delivery hereof by all parties hereto.

2.2.In the definitions below, each current Rentable Area (as defined below) is expressed in square feet.   Rentable Area and "Tenant's Pro Rata Share" are both subject to adjustment as provided in this Lease.

	(As of the Term
Definition or Provision	Means the Following (As of the Term Commencement Date)
Approximate Rentable Area of Premises	88,392 square feet
Approximate Rentable Area of Project	176,956 square feet
Tenant's  Pro Rata Share of Project	49.95%

2.3.Monthly and annual installments of Base Rent for the Premises ("Base Rent") as of the Term Commencement Date:

Dates	Square Feet of Rentable Area	Base Rent per Square Foot of Rentable Area	Monthly Base Rent	Annual Base Rent
10/6/16- 1/5/17	61,153*	$3.50 monthly	$214,035.50	$2,568,426.00
1/6/17- 10/5/17	88,392	$3.50 monthly	$309,372.00	$3,712,464.00
10/6/17- 10/5/18	88,392	$3.61 monthly	$319,095.12	$3,829,141.44
10/6/18 - 10/5/19	88,392	$3.72 monthly	$328,818.24	$3,945,818.88
10/6/19- 10/5/20	88,392	$3.83 monthly	$338,541.36	$4,062,496.32
10/6/20-10/5/21	88,392	$3.94 monthly	$348,264.48	$4,179,173.76
10/6/21- 10/5/22	88,392	$4.06 monthly	$358,871.52	$4,306,458.24
10/6/22- 10/5/23	88,392	$4.18 monthly	$369,478.56	$4,433,742.72

*That  certain  portion ofthePremisescontaining27,239squarefeetofRentableAreaand identifiedas the "IntrexonSpace" on Exhibit A-1 is currentlysubject to a lease with Intrexon Corporation(the "ExistingTenant"),which lease is scheduled to expire on January 5, 2017, but which lease contains an option pursuant to which Existing Tenant may elect to extend its lease as to all or portions of the Intrexon Space for a period of three (3) years.  The Intrexon Space will be added to the Premises in accordance with the terms of Article3.   The Premises, excluding the Intrexon Space, is referred to herein as the "Initial Premises." The Base Rent chart above will be modified in the event the Term Commencement Date for the Intrexon Space does not occur on January6,2017,whichmodificationwillbeconfirmedinanAcknowledgementofTerm

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Commencement Date and Term Expiration Date in a form substantially similar to Exhibit C. Failure to execute and deliver such acknowledgment, however, shall not affect Tenant's liability hereunder.

2.4.Term Commencement Date:   October 6, 2016 as to the Initial Premises, and estimated to be January 6, 2017 as to the Intrexon Space.

2.5.Term Expiration Date: October 5, 2023

2.6.Security Deposit: $500,000

2.7.Permitted Use:   Office, R&D, manufacturing and laboratory use in conformity with all federal, state, municipal and local laws, codes, ordinances, rules and regulations of Governmental Authorities (as defined below), committees, associations, or other regulatory committees, agencies or governing bodies having jurisdiction over the Premises, the Building, the Property, the Project, Landlord or Tenant, including both statutory and common law and hazardous waste rules and regulations ("Applicable Laws")

2.8.        Address for Rent Payment:
	BMR-201 Industrial Road LP
	Attention Entity 350
	P.O. Box 511415
	Los Angeles, California 90051-7970
2.9.        Address for Notices to Landlord:
	BMR-201 Industrial Road LP
	17190 Bernardo Center Drive
	San Diego, California 92128
	Attn: Real Estate Legal Department
2.10.        Address for Notices to Tenant:
	Natera, Inc.
	201 Industrial Road, Suite 410
	San Carlos, California 94070
	Attention: Controller
With a copy to:
	Natera, Inc.
	201 Industrial Road, Suite 410
	San Carlos, California 94070
	Attention: Legal Department
2.11.        Address for Invoices to Tenant:

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Natera, Inc.

201 Industrial Road, Suite 410

San Carlos, California 94070

Attention: Controller

2.12.The following Exhibits are attached hereto and incorporated herein by reference:

Exhibit A	Premises, Storage Space and Mechanical Room
Exhibit A-I	Intrexon Space
Exhibit B	Work Letter
Exhibit B-1	Tenant Work Insurance Schedule
Exhibit C	Acknowledgement of Term Commencement Date and Term Expiration Date
Exhibit D	[Intentionally omitted]
Exhibit E	Form of Letter of Credit
Exhibit F	Rules and Regulations
Exhibit G	[Intentionally omitted]
Exhibit H	Tenant's Personal Property
Exhibit I	Form of Estoppel Certificate

3.Term.The actual term of this Lease (as the same may be extended pursuant to Article 42 hereof, and as the same may be earlier terminated in accordance with this Lease, the "Term") shall commence on the Term Commencement Date and end on the Term Expiration Date, subject to extension or earlier termination of this Lease as provided herein.   TENANT HEREBY WAlVES THE REQUIREMENTS OF SECTION 1933 OF THE CALIFORNIA CIVIL CODE, AS THE SAME MAY BE AMENDED FROM TIME TO TIME.

3.IThe Intrexon Space will be added to the Premises leased hereunder on the date that is the later of(a)  January 6, 2017, and (b) the day after the date Existing Tenant's lease of the Intrexon Space terminates and Existing Tenant surrenders the Intrexon Space to Landlord. Landlord currently anticipates that the Term Commencement Date as to the Intrexon Space will be January 6, 2017.  In the event Existing Tenant exercises its extension option, then, as to that portion of the Intrexon Space that Existing Tenant elects, Existing Tenant's lease will expire on or about January 5, 2020, and, in such event, the estimated Term Commencement Date will be January 6, 2020.  Tenant hereby acknowledges that the effect of the foregoing may result in the Intrexon Space being delivered to Tenant in two (2) phases (i.e., if Existing Tenant elects to extend only as to a portion of the Intrexon Space).  Landlord shall not be liable to Tenant or otherwise be in default hereunder in the event that Landlord is unable to deliver the Intrexon Space to Tenant on the estimated Term Commencement Date or any other anticipated delivery date due to Existing Tenant's exercise of its option to extend or by reason of any failure of Existing Tenant to timely vacate and surrender to Landlord the Intrexon Space or any portion thereof.  Landlord will notifY Tenant whether Existing Tenant has exercised its option to extend its lease as to the Intrexon Space upon written request of Tenant, which request may be made at any time after April 15, 2016.  The Intrexon Space will be added to the Initial Premises as of the Term Commencement Date (as the same may be modified by this Section) on all of the same terms and conditions applicable to the Initial Premises, including the amount of Base Rent

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payable on a per square foot basis and the Term Expiration  Date.   During the period from the Term Commencement Date for the Initial Premises through the Term Commencement Date for the Intrexon Space, Tenant's Pro Rata Share of the Project shall be 34.56%.

4.Possession and Commencement Date.

4.1.The "Term Commencement Date" shall be the date set forth in Section 2.4, as modified by Section 3.1 as to the Intrexon Space.  Tenant shall execute and deliver to Landlord written acknowledgment of the actual Term Commencement Dates and the Term Expiration Date within ten (I 0) daysafter Tenant takesoccupancyofthePremises,inthe formattachedas Exhibit C hereto.  Failure to execute and deliver such acknowledgment, however, shall not affect the Term Commencement Date or Landlord's or Tenant's liability hereunder.  Failure by Tenant to obtain validationby any medical review board or other similar governmentallicensing of the Premises required forthePermittedUsebyTenantshallnotservetoextendtheTerm CommencementDate.   The term "Substantially Complete" or "Substantial Completion" means that the Tenant Improvements are substantially complete in accordance with the Approved Plans (as defined in the Work Letter), except for minor punch list items.

4.2.Tenant shall cause the Tenant Improvementsto be constructed in the Premises pursuant to the Work LetterattachedheretoasExhibitB(the"WorkLetter")atacostto Landlordnot to exceed(a) Four HundredThousandDollars ($400,000)(the "TI Allowance"). TheTIAllowancemaybeappliedtothecostsof(m)construction,(n)projectreviewby Landlord(whichfee shallequalthreepercent(3%)of the costof the TenantImprovements, including the TI Allowance), (o) commissioning of mechanical, electrical and plumbing systems by a licensed,qualified commissioning agent hired by Tenant, and review of such party's commissioning report by a licensed, qualified commissioning agent hired by Landlord, (p) space planning, architect, engineering and other related services performed by third parties unaffiliated with Tenant, (q) building permits and other taxes, fees, charges and levies by Governmental Authorities (as defined below) for permits or for inspections of the Tenant Improvements, and (r) costsandexpensesforlabor,material,equipmentandfixtures. InnoeventshalltheTI Allowancebe used for (v) the costof work that is not authorizedby the ApprovedPlans (as definedintheWorkLetter)orotherwiseapprovedin writingby Landlord,(w)paymentsto Tenant or any affiliatesof Tenant, (x) the purchase of any furniture, personal property or other non-buildingsystem equipment, (y) costs resulting from any default by Tenant of its obligations under this Lease or (z) costs that are recoverableby Tenantfrom a third party (e.g., insurers, warrantors, or tortfeasors).

4.3.Tenantshall have until AprilI, 2018 (the "TIDeadline"),to expend the unused portionofthe TI Allowance,afterwhichdateLandlord'sobligationto fundsuchcostsshall exp1re.

4.4.In no event shall any unused TI Allowance entitle Tenant to a credit against Rent payable under this Lease.Tenant shall deliver to Landlord (a) a certificate of occupancy for the Premises suitable for the PermittedUse and (b) a Certificateof SubstantialCompletionin the form of the AmericanInstitute of Architectsdocument G704, executedby the project architect and the general contractor.

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4.5.Prior to commencing any Tenant Improvements in the Premises, Tenant shall furnish to Landlord evidence satisfactory to Landlord that insurance coverages required of Tenant under the provisions of Article 23 are in effect, and Tenant acknowledges that the Tenant Improvements will be constructed during the Term, and such construction will not be deemed a constructive eviction, nor shall such construction entitle Tenant to any abatement of Rent in connection therewith.

4.6.Theselectionofthearchitect,engineer,generalcontractorandmaJor subcontractors shall be made in accordance with the Work Letter.

5.Condition of Premises. Tenant has been in occupancy of the Premises as a subtenant prior to the Execution Date, and has had an opportunity to inspect the Premises and is familiar with the condition of the Premises.Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of the Premises, the Building or the Project, or with respect to the suitability of the Premises, the Building or the Project for the conduct of Tenant's business.Tenant acknowledges that (a) it is fully familiar with the condition of the Premises and agrees to take the same in its condition "as is" as of the Term Commencement Date and (b) Landlord shall have no obligation to alter, repair or otherwise prepare the Premises for Tenant's occupancy or to pay for or construct any improvements to the Premises, except with respect to the TI Allowance and the last sentence of this Article. Tenant's execution and delivery of this Lease shall, except as otherwise agreed to in writing by Landlord and Tenant, conclusively establish that the Premises, the Building and the Project were, as of the Execution Date, in good, sanitary and satisfactory condition and repair.Landlord will install, at Landlord's cost, on or before the Term Commencement Date, ten (I0)bicycle lockers at a location designated by Landlord within the Project for the shared use of all tenants and occupants of the Project.

6.Rentable Area.

6.1.The term "Rentable Area" shall reflect such areas as reasonably calculated by Landlord's architect, as the same may be reasonably adjusted from time to time by Landlord in consultation with Landlord's architect to reflect changes to the Premises, the Building or the Project, as applicable.  Notwithstanding the foregoing to the contrary, in no event shall the Rentable Area of the Premises be deemed to have increased unless due to a change in the outer dimensions of the exterior walls of the same.

6.2.The Rentable Area of the Building is generally determined by making separate calculations of Rentable Area applicable to each floor within the Building and totaling the Rentable Area of all floors within the Building.  The Rentable Area of a floor is computed by measuring to the outside finished surface of the permanent outer Building walls.  The full area calculated as previously set forth is included as Rentable Area, without deduction for columns and projections or verticalpenetrations,includingstairs,elevatorshafts, flues,pipe shafts, vertical ducts and the like, as well as such items' enclosing walls.

6.3.The term "Rentable Area," when applied to the Premises, is that area equal to the usable area of the Premises, plus an equitable allocation of Rentable Area within the Building that is not then utilized or expected to be utilized as usable area, including that portion of the

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Building devoted to corridors, equipment rooms, restrooms, elevator lobby, atrium and mailroom.

7.Rent.

7.1.Tenant shall pay to Landlord as Base Rent for the Premises, commencing on the Term Commencement Date, the sums set forth in Section 2.3.  Base Rent shall be paid in equal monthly installments as set forth in Section 2.3, each in advance on the first day of each and every calendar month during the Term.

7.2.InadditiontoBaseRent,TenantshallpaytoLandlordasadditionalrent ("AdditionalRent") at times hereinafter specified in this Lease (a) Tenant's Adjusted Share (as defined below) of Operating Expenses (as defined below), (b) the Property Management Fee (as defined below), (c) the Facilities Management Fee (as defined below) and (d) any other amounts thatTenantassumesoragreestopayundertheprovisionsofthisLeasethatareowedto Landlord,including any and all other sums that may become due by reasonof any default of TenantorfailureonTenant'sparttocomplywiththeagreements,terms,covenantsand conditions of this Lease to be performed by Tenant, after notice and the lapse of any applicable cure periods.

7.3.Base Rent and Additional Rent shall together be denominated "Rent." Rent shall be paid to Landlord, without abatement, deduction or offset, in lawful money of the United States of America to the address set forth in Section 2.8 or to such other person or at such other place as Landlord may from time designate in writing.   In the event the Term commences  or ends on a day other than the first day of a calendar month, then the Rent for such fraction of a month shall be prorated for such period on the basis of the number of days in the month and shall be paid at the then-current rate for such fractional month.

7.4.Tenant's obligation to pay Rent shall not be discharged or otherwise affected by (a) any Applicable Laws now or hereafter applicable to the Premises, (b) any other restriction on Tenant's use, (c) exceptas expresslyprovidedherein,any casualty or takingor (d) any other occurrence; and (except as expressly provided herein) Tenant waives all rights now or hereafter existing to terminate or cancel this Lease or quit or surrender the Premises or any part thereof, or to assert any defense in the nature of constructiveeviction to any action seeking to recover rent. Tenant's obligation to pay Rent with respect to any period or obligations arising, existing or pertaining to the period prior to the date of the expiration or earlier termination of the Term or this Leaseshallsurviveanysuchexpirationorearliertermination;provided,however,that nothingin this sentence shall in any way affect Tenant's obligationswith respect to any other period.

8.[Intentionally Omitted]

9.Operating Expenses.

9.1.As used herein, the term "Operating Expenses" shall include:

(a)Goverrunent impositions, including property tax costs consisting of real and personal property taxes (including amounts due under any improvement bond upon the

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Building or the Project (including the parcel or parcels of real property upon which the Building and areas serving the Building are located)) or assessments in lieu thereof imposed by any federal, state, regional, local or municipal governmental authority, agency or subdivision (each, a "Governmental Authority"); taxes on or measured by gross rentals received from the rental of space in the Project; taxes based on the square footage of the Premises, the Building or the Project, as well as any parking charges, utilities surcharges or any other costs levied, assessed or imposed by, or at the direction of, or resulting from Applicable Laws or interpretations thereof, promulgated by any Governmental Authority in connection with the use or occupancy of the Project or the parking facilities serving the Project; taxes on this transaction or any document to which Tenant is a party creating or transferring an interest in the Premises; any fee for a business license to operate an office building; and any expenses, including the reasonable cost of attorneys or experts, reasonably incurred by Landlord in seeking reduction by the taxing authority of the applicable taxes, less tax refunds obtained as a result of an application for review thereof; and

(b)All other costs of any kind paid or incurred by Landlord in connection with the operation or maintenance of the Building and the Project, and costs of repairs and replacements to improvements within the Project as appropriate to maintain the Project as required hereunder, including costs of funding such reasonable reserves as Landlord, consistent with good business practice, may establish to provide for future repairs and replacements; costs of utilities furnished to the Common Area; sewer fees; cable television; trash collection; cleaning, including windows; heating, ventilation and air-conditioning ("HVAC"); maintenance of landscaping and grounds; maintenance of drives and parking areas; maintenance of the roof; security services and devices; building supplies; maintenance or replacement of equipment utilized for operation and maintenance of the Project; ground lease rent; license, permit and inspection fees; sales, use and excise taxes on goods and services purchased by Landlord in connection with the operation, maintenance or repair of the Building or Project systems and equipment; telephone, postage, stationery supplies and other expenses incurred in connection with the operation, maintenance or repair of the Project; accounting, legal and other professional fees and expenses incurred in connection with the Project; costs of furniture, draperies, carpeting, landscaping supplies and other customary and ordinary items of personal property provided by Landlord for use in Common Area or in the Project office; Project office rent or rental value for a commercially reasonable amount of space, to the extent an office used for Project operations is maintained at the Project, plus customary expenses for such office; capital expenditures incurred (i) in replacing obsolete equipment, (ii) for the primary purpose of reducing Operating Expenses or (iii) required by any Governmental Authority to comply with changes in Applicable Laws that take effect after the Execution Date or to ensure continued compliance with Applicable Laws in effect as of the Execution Date, in each case amortized over the useful life thereof, as reasonably determined by Landlord, in accordance with generally accepted accounting principles, but in no event longer than ten (10) years; costs of complying with Applicable Laws (except to the extent such costs are incurred to remedy non-compliance as of the Execution Date with Applicable Laws); costs to keep the Project in compliance with, or costs or fees otherwise required under or incurred pursuant to any CC&Rs (as defined below), including condominium fees; insurance premiums, including premiums for commercial general liability, property casualty, earthquake, terrorism and environmental coverages; portions of insured losses paid by Landlord as part of the deductible portion of a loss pursuant to the terms of insurance policies; service contracts; costs of

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services of independent contractors retained to do work of a nature referenced above; and costs of compensation (including employment taxes and fringe benefits) of all persons who perform regular and recurring duties connected with the day-to-day operation and maintenance of the Project, its equipment, the adjacent walks, landscaped areas, drives and parking areas, including janitors, floor waxers, window washers, watchmen, gardeners, sweepers, plow truck drivers, handymen, and engineering/maintenance/facilities personnel.

(c)Notwithstanding the foregoing, Operating Expenses shall not include any net income, franchise, capital stock, estate or inheritance taxes, or taxes that are the personal obligation of Tenant or of another tenant of the Project; capital expenditures other than as expressly provided in Section 9(b); leasing commissions; expenses that relate to preparation of rental space for a tenant or relocation of any tenant; legal fees, advertising and promotional expenses and similar costs incurred in procuring tenants for the Project; expenses of initial development and construction, including grading, paving, landscaping and decorating (as distinguished from maintenance, repair and replacement of the foregoing); legal fees or other expenses incuned in enforcing leases with other tenants; costs of repairs to the extent reimbursed by payment of insurance proceeds received by Landlord; interest upon loans to Landlord or secured by a mortgage or deed of trust covering the Project or a portion thereof (provided that interest upon a government assessment or improvement bond payable in installments shall constitute an Operating Expense under Subsection 9.l(a)); wages, bonuses or other compensation of employees above the level of Property Manager; depreciation claimed by Landlord for tax purposes (provided that this exclusion of depreciation is not intended to delete from Operating Expenses actual costs of repairs and replacements and reasonable reserves in regard thereto that are provided for in Subsection 9.l(b));  taxes that are excluded from Operating Expenses by the last sentence of Subsection 9.l(a); costs or expenses incurred in connection with the financing or sale of the Project or any portion thereof; costs expressly excluded from Operating Expenses elsewhere in this Lease or that are charged to or paid by Tenant under other provisions of this Lease; professional fees and disbursements and other costs and expenses related to the ownership (as opposed to the use, occupancy, operation, maintenance or repair) of the Project; electric power costs or other utility costs for which any tenant directly contracts with the local public service company (but Landlord shall have the right to "gross up" as if such space was vacant); costs or expenses incurred in connection with the removal, handling or disposal of Hazardous Materials (as defined in Section 21.8 below) or defending against claims relating to Hazardous Materials, in either instance where such Hazardous Materials either (i) existed in the Premises as of the date Tenant first occupied the Premises and were not exacerbated by any act or omission of Tenant or any Tenant Party (as defined below) or (ii) were brought onto the Project by Landlord in violation of Applicable Laws in existence at the time such Hazardous Materials were brought onto the Project; expenses in connection with services or other benefits which are not offered to Tenant or for which Tenant is charged for directly but which are provided to another tenant or occupant of the Building, without charge; charitable or political contributions; costs incurred in connection with the acquisition of art work (provided that costs to repair and maintain art work may be included in Operating Expenses); the original construction costs of the Project and costs to remedy defects in such original construction; costs reimbursed by insurance or by other tenants of the Project (other than reimbursement as part of such other tenants' operating expense payments); penalties, fines or interest incurred as a result of Landlord's inability or failure to

9

make payment of taxes or other obligations of Landlord when due; overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in or to the Project to the extent such payments materially exceed the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis; and any item that, if included in Operating Expenses, would involve a double collection for such item by Landlord. To the extent that Tenant uses more than Tenant's Pro Rata Share of any item of Operating Expenses, Tenant shall pay Landlord for such excess in addition to Tenant's obligation to pay Tenant's Pro Rata Share of Operating Expenses (such excess, together with Tenant's Pro Rata Share, "Tenant's Adjusted Share"); provided that the foregoing will not operate to provide double collection for such item by Landlord.

9.2.Tenant shall pay to Landlord on the first day of each calendar month of the Term, as Additional Rent, (a) the Property Management Fee (as defined below), (b) the Facilities Management Fee (as defined below) and (c) Landlord's estimate of Tenant's Adjusted Share of Operating Expenses with respect to the Building and the Project, as applicable, for such month.

(w)The "Propertv Management Fee" shall equal three percent (3%) of Base Rent due from Tenant.   Tenant shall pay the Property Management Fee in accordance with Section 9.2 with respect to the entire Term, including any extensions thereof or any holdover periods, regardless of whether Tenant is obligated to pay Base Rent, Operating Expenses or any other Rent with respect to any such period or portion thereof.

(x)The "Facilities Management Fee" shall equal one-half of one  percent (0.5%) of Base Rent and Operating Expenses due from Tenant.  Tenant shall pay the Facilities Management Fee in accordance with Section 9.2 with respect to the entire Term, including any extensions thereof or any holdover periods, regardless of whether Tenant is obligated to pay Base Rent, Operating Expenses or any other Rent with respect to any such period or portion thereof.

(y)Within ninety (90) days after the conclusion of each calendar year (or such longer period as may be reasonably required by Landlord), Landlord shall furnish to Tenant a statement showing in reasonable detail the actual Operating Expenses, Tenant's Adjusted Share of  Operating Expenses, and the cost of providing utilities to the Premises for the previous calendar year ("Landlord's Statement").  Any additional sum due from Tenant to Landlord shall be due and payable within thirty (30) days after receipt of an invoice therefor.   If the amounts paid by Tenant pursuant to this Section exceed Tenant's Adjusted Share of Operating Expenses for the previous calendar year, then Landlord shall credit the difference against the Rent next due and owing from Tenant; provided that, if the Lease term has expired, Landlord shall accompany Landlord's Statement with payment for the amount of such difference.

(z)Any amount due under this Section for any period that is less than a full month shall be prorated for such fractional month on the basis of the number of days in the month.

9.3.Landlord may, from time to time, modifY Landlord's calculation and allocation procedures for Operating Expenses, so long as such modifications produce Dollar results substantially consistent with Landlord's then-current practice at the Project.  Landlord or an

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affiliate(s) of Landlord currently own other property(ies) adjacent to the Project or its neighboring properties (collectively, "Neighboring Properties").   In connection with Landlord performing services for the Project pursuant to this Lease, similar services may be performed by the same vendor(s) for Neighboring Properties.   In such a case, Landlord shall reasonably allocate to each building and the Project the costs for such services based upon the ratio that the square footage of the Building or the Project (as applicable) bears to the total square footage of all of the Neighboring Properties or buildings within the Neighboring Properties for which the services are performed, unless the scope of the services performed for any building or property (including the Building and the Project) is disproportionately more or less than for others, in which case Landlord shall equitably allocate the costs based on the scope of the services being performed for each building or property (including the Building and the Project).

9.4.Landlord's annual statement shall be final and binding upon Tenant unless Tenant, within sixty (60) days after Tenant's receipt thereof, shall contest any item therein by giving written notice to Landlord, specifYing each item contested and the reasons therefor; provided that Tenant shall in all events pay the amount specified in Landlord's annual statement, pending the results of the Independent Review and determination of the Accountant(s), as applicable and as each such term is defined below. If, during such sixty (60)-day period, Tenant reasonably and in good faith questions or contests the correctness of Landlord's statement of Tenant's Adjusted Share of Operating Expenses, Landlord shall provide Tenant with reasonable access to Landlord's books and records to the extent relevant to determination of Operating Expenses, and such information as Landlord reasonably determines to be responsive to Tenant's written inquiries.  In the event that, after Tenant's review of such information, Landlord and Tenant cannot agree upon the amount of Tenant's Adjusted Share of Operating Expenses, then Tenant shall have the right to have an independent public accounting firm hired by Tenant on an hourly basis and not on a contingent-fee basis (at Tenant's sole cost and expense) and approved by Landlord (which approval Landlord shall not umeasonably withhold or delay) audit and review such of Landlord's books and records for the year in question as directly relate to the determination of Operating Expenses for such year (the "Independent Review"), but not books and records of entities other than Landlord.  Landlord shall make such books and records available at the location where Landlord maintains them in the ordinary course of its business. Landlord need not provide copies of any books or records.  Tenant shall commence the Independent Review within fifteen (15) days after the date Landlord has given Tenant access to Landlord's books and records for the Independent Review.  Tenant shall complete the Independent Review and notifY Landlord in writing of Tenant's specific objections to Landlord's calculation of Operating Expenses (including Tenant's accounting firm's written statement of the basis, nature and amount of each proposed adjustment) no later than sixty (60) days after Landlord has first given Tenant access to Landlord's books and records for the Independent Review. Landlord shall review the results of any such Independent Review. The parties shall endeavor to agree promptly and reasonably upon Operating Expenses taking into account the results of such Independent Review. If, as of the date that is sixty (60) days after Tenant has submitted the Independent Review to Landlord, the parties have not agreed on the appropriate adjustments to Operating Expenses, then the parties shall engage a mutually agreeable independent third party accountant with at least ten (I0) years' experience in commercial real estate accounting in the San Francisco Bay area (the "Accountant"). If the parties cannot agree

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on the Accountant, each shall within ten (10) days after such impasse appoint an Accountant (different from the accountant and accounting firm that conducted the Independent Review) and, within ten (10) days after the appointment of both such Accountants, those two Accountants shall select a third (which cannot be the accountant and accounting firm that conducted the Independent Review).  If either party fails to timely appoint an Accountant, then the Accountant the other party appoints shall be the sole Accountant.  Within ten (10) days after appointment of the Accountant(s), Landlord and Tenant shall each simultaneously give the Accountants (with a copy to the other party) its determination of Operating Expenses, with such supporting data or information as each submitting party determines appropriate.  Within ten (10) days after such submissions, the Accountants shall by majority vote select either Landlord's or Tenant's determination of Operating Expenses.  The Accountants may not select or designate any other determination of Operating Expenses.  The determination of the Accountant(s) shall bind the parties.  If the parties agree or the Accountant(s) determine that the Operating Expenses actually paid by Tenant for the calendar year in question exceeded Tenant's obligations for such calendar year, then Landlord shall, at Tenant's option, either (a) credit the excess to the next succeeding installments of estimated Additional Rent or (b) pay the excess to Tenant within thirty (30) days after delivery of such results.  If the parties agree or the Accountant(s) determine that Tenant's payments of Operating Expenses for such calendar year were less than Tenant's obligation for the calendar year, then Tenant shall pay the deficiency to Landlord within thirty (30) days after delivery of such results.  If the Independent Review reveals or the Accountant(s) determine that the Operating Expenses billed to Tenant by Landlord and paid by Tenant to Landlord for the applicable calendar year in question exceeded by more than five percent (5%) what Tenant should have been billed during such calendar year, then Landlord shall pay the reasonable cost of the Independent Review. In all other cases, Tenant shall pay the cost of the Independent Review. In all instances, Tenant shall pay the cost of the Accountant(s).

9.5.Tenant shall not be responsible for Operating Expenses with respect to any time period prior to the Term Commencement Date; provided, however, that Landlord may annualize certain Operating Expenses incurred prior to the Term Commencement Date over the course of the budgeted year during which the Term Commencement Date occurs, and Tenant shall be responsible for the annualized portion of such Operating Expenses corresponding to the number of days during such year, commencing with the Term Commencement Date, for which Tenant is otherwise liable for Operating Expensespursuant to this Lease. Tenant'sresponsibility for Tenant'sAdjusted Share of Operating Expenses shall continue to the latest of (a) the date of termination of the Lease, (b) the date Tenant has fully vacated the Premises and (c) if termination of the Lease is due to a default by Tenant, the date of rental commencement of a replacement tenant.

9.6.Operating Expenses for the calendar year in which Tenant's obligation to share therein commences and for the calendar year in which such obligation ceases shall be prorated on a basis reasonably determined by Landlord.  Expenses such as taxes, assessments and insurance premiums that are incurred for an extended time period shall be prorated based upon the time periods to which they apply so that the amounts attributed to the Premises relate in a reasonable manner to the time period wherein Tenant has an obligation to share in Operating Expenses.

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9.7.Within thirty (30) days after the end of each calendar month, Tenant shall submit to Landlord an invoice, or, in the event an invoice is not available, an itemized list, of all costs and expenses that (a) Tenant has incurred (either internally or by employing third parties) during the prior month and (b) for which Tenant reasonably believes it is entitled to reimbursements from Landlord pursuant to the terms of this Lease or the Work Letter.

9.8.In the event that the Building is less than fully occupied during a calendar year, Tenant acknowledges that Landlord may extrapolate Operating Expenses that vary depending on the occupancy of the Building to equal Landlord's reasonable estimate of what such Operating Expenses would have been had the Building been ninety-five percent (95%) occupied during such calendar year; provided, however, that Landlord shall not recover more than one hundred percent (100%) of Operating Expenses.

10.Taxes on Tenant's Property.

10.1.Tenant shall be solely responsible for the payment of any and all taxes levied upon (a) personal property and trade fixtures located at the Premises and (b) any gross or net receipts of or sales by Tenant, and shall pay the same prior to delinquency.

10.2.If any such taxes on Tenant's personal property or trade fixtures are levied against Landlord or Landlord's property or, if the assessed valuation of the Building, the Property or the Project is increased by inclusion therein of a value attributable to Tenant's personal property or trade fixtures, and if Landlord, after written notice to Tenant, pays the taxes based upon any such increase in the assessed value of the Building, the Property or the Project, then Tenant shall, upon demand, repay to Landlord the taxes so paid by Landlord.

I 0.3.If any improvements in or alterations to the Premises, whether owned by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which improvements conforming to Landlord'sbuilding standards (the "Building Standard") in other spaces in the Building are assessed, then the real property taxes and assessments levied against Landlord or the Building, the Property or the Project by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of Section I 0.2.  Any such excess assessed valuation due to improvements in or alterations to space in the Project leased by other tenants at the Project shall not be included in Operating Expenses. If the records of the applicable governmental assessor's office are available and sufficiently detailed to serve as a basis for determining whether such Tenant improvements or alterations are assessed at a higher valuation than the Building Standard, then such records shall be binding on both Landlord and Tenant.

11.Security Deposit.

11.  1.Tenant shall deposit with Landlord on or before the Execution Date the sum set forth in Section 2.6 (the "Security Deposit"), which sum shall be held by Landlord as security for the faithful performance by Tenant of all of the terms, covenants and conditions of this Lease to be kept and performed by Tenant during the Term.  If Tenant Defaults (as defined below) with respect to any provision of this Lease, including any provision relating to the payment of Rent,

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then Landlord may (but shall not be required to) use, apply or retain all or any part of the Security Deposit for the payment of any Rent or any other sum in default, or to compensate Landlord for any other loss or damage that Landlord may suffer by reason of Tenant's default.  If any portion of the Security Deposit is so used or applied, then Tenant shall, within ten (10) days following demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount, and Tenant's failure to do so shall be a material breach of this Lease.  The provisions of this Article shall survive the expiration or earlier termination of this Lease.  TENANT HEREBY WAIVES THE REQUIREMENTS OF SECTION 1950.7 OF THE CALIFORNIA CIVIL CODE, AS THE SAME MAY BE AMENDED FROM TIME TO TIME.

11.2.In the event of bankruptcy or other debtor-creditor proceedings against Tenant, the Security Deposit shall be deemed to be applied first to the payment of Rent and other charges due Landlord for all periods prior to the filing of such proceedings.

11.3.Landlord may deliver to any purchaser of Landlord's interest in the Premises the funds deposited hereunder by Tenant, and thereupon Landlord shall be discharged from any further liability with respect to such deposit.  This provision shall also apply to any subsequent transfers.

11.4.If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, then the Security Deposit, or any balance thereof, shall be returned to Tenant (or, at Landlord's option, to the last assignee of Tenant's interest hereunder) within thirty (30) days after the expiration or earlier termination of this Lease.

11.5.If the Security Deposit shall be in cash, Landlord shall hold the Security Deposit in an account at a banking organization selected by Landlord; provided, however, that Landlord shall not be required to maintain a separate account for the Security Deposit, but may intermingle it with other funds of Landlord.  Landlord shall be entitled to all interest and/or dividends, if any, accruing on the Security Deposit.   Landlord shall not be required to credit Tenant with any interest for any period during which Landlord does not receive interest on the Security Deposit.

11.6.The Security Deposit may be in the form of cash, a letter of credit or any other security instrument acceptable to Landlord in its sole discretion. Tenant may at any time, except when Tenant is in Default (as defined below), deliver a letter of credit (the "LIC Securitv") as the entire Security Deposit, as follows:

(a)IfTenantelectstodeliverLICSecurity,thenTenantshallprovide Landlord, and maintain in full force and effect throughout the Term and until the date that is four (4) months after the then-current Term Expiration Date, a letter of credit in the form of Exhibit E issued by an issuer reasonably satisfactory to Landlord, in the amount of the Security Deposit, with an initial term of at least one year. Landlord may require the LIC Security to be re-issued by a different issuer at any time during the Term if Landlord reasonably believes that the issuing bank of the LIC Security is or may soon become insolvent; provided, however, Landlord shall return the existing LIC Security to the existing issuer immediately upon receipt of the substitute LIC Security. If any issuer of the LIC Security shall become insolvent or placed into FDIC receivership, then Tenant shall immediately deliver to Landlord (without the requirement of

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notice from Landlord) substitute L!C Security issued by an issuer reasonably satisfactory to Landlord, and otherwise conforming to the requirements set forth in this Article. As used herein with respect to  the issuer of the LIC Security, "insolvent" shall mean the determination of insolvency as made by such issuer's primary bank regulator (i.e., the state bank supervisor for state chartered banks; the OCC or OTS, respectively, for federally chartered banks or thrifts; or the Federal Reserve for its member banks).  If, at the Term Expiration Date, any Rent remains uncalculated or unpaid, then (i) Landlord shall with reasonable diligence complete any necessary calculations, (ii) Tenant shall extend the expiry date of such LIC Security from time to time as Landlord reasonably requires and (iii) in such extended period, Landlord shall not unreasonably refuse to consent to an appropriate reduction of the LIC Security.   Tenant shall reimburse Landlord's legal costs (as reasonably estimated by Landlord's counsel) in handling Landlord's acceptance of LIC Security or its replacement or extension.

(b)If Tenant delivers to Landlord satisfactory L!C Security in place of the entire Security Deposit, Landlord shall remit to Tenant any cash Security Deposit Landlord previously held.

(c)Landlord  may  draw  upon  the  LIC Security,  and  hold  and  apply  the proceeds in the same manner and for the same purposes as the Security Deposit, if (i) an uncured Default (as defined below) exists, (ii) as of the date forty-five (45) days before any LIC Security expires (even if such scheduled expiry date is after the Term Expiration Date) Tenant has not delivered to Landlord an amendment or replacement for such L!C Security, reasonably satisfactory to Landlord, extending the expiry date to the earlier of (I) six (6) months after the then-current Term Expiration Date or (2) the date one year after the then-current expiry date of the L!C Security, (iii) the L!C Security provides for automatic renewals, Landlord asks the issuer to confirm the current LIC Security expiry date, and the issuer fails to do so within ten (I 0) business days, (iv) Tenant fails to pay (when and as Landlord reasonably requires) any bank charges for Landlord's transfer of the L!C Security or (v) the issuer of the L!C Security ceases, or announces that it will cease, to maintain an office in the city where Landlord may present drafts under the LIC Security (and fails to permit drawing upon the L!C Security by overnight courier or facsimile).  This Section does not limit any other provisions of this Lease allowing Landlord to draw the LIC Security under specified circumstances.

(d)Tenant shall  not  seek  to  enjoin,  prevent, or  otherwise interfere with Landlord's draw under L!C Security, even if it violates this Lease. Tenant acknowledges that the only effect of a wrongful draw would be to substitute a cash Security Deposit for LIC Security, causing Tenant no legally recognizable damage.  Landlord shall hold the proceeds of any draw in the same manner and for the same purposes as a cash Security Deposit.   In the event of a wrongful draw, the parties shall cooperate to allow Tenant to post replacement LIC Security simultaneously with the return to Tenant of the wrongfully drawn sums, and Landlord shall upon request confirm in writing to the issuer of the LIC Security that Landlord's draw was erroneous.

(e)If  Landlord transfers  its  interest in the Premises, then Tenant shall at Tenant's expense, within five (5) business days after receiving a request from Landlord, deliver (and, if the issuer requires, Landlord shall consent to) an amendment to the LIC Security naming Landlord's grantee as substitute beneficiary.  If the required Security Deposit changes while LIC

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Security is in force, then Tenant shall deliver (and, if the issuer requires, Landlord shall consent to) a corresponding amendment to the LIC Security.

12.Use.

12.1.Tenant shall use  the  Premises for  the  Permitted  Use, and shall  not  use  the Premises, or permit or suffer the Premises to be used, for any other purpose without Landlord's prior written consent, which consent Landlord may withhold in its sole and absolute discretion. Tenant shall, subject to Landlord's reasonable security requirements, Force Majeure, casualty and de minimus interruptions, have access to the Premises twenty-four (24) hours per day, seven (7) days per week.

12.2.Tenant shall not use or occupy the Premises in violation of Applicable Laws; zoning ordinances; or the certificate of occupancy issued for the Building or the Project, and shall, upon five (5) days' written notice from Landlord, discontinue any use of the Premises that is declared or claimed by any Governmental Authority having jurisdiction to be a violation of any of the above, or that in Landlord's reasonable opinion violates any of the above.  Tenant shall comply with any direction of any Governmental Authority having jurisdiction that shall, by reason of the nature of Tenant's use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or with respect to the use or occupation thereof, and shall indemnifY, save, defend (at Landlord'soption and with counsel reasonably acceptable to Landlord) and hold Landlord and its affiliates, employees, agents and contractors; and any lender, mortgagee, ground lessor or beneficiary (each, a "Lender" and, collectively with Landlord and its affiliates, employees, agents and contractors, the "Landlord Indemnitees") harmless from and against any and all demands, claims, liabilities, losses, costs, expenses, actions, causes of action, damages, suits or judgments, and all reasonable expenses (including reasonable attorneys' fees, charges and disbursements, regardless of whether the applicable demand, claim, action, cause of action or suit is voluntarily withdrawn or dismissed) incurred in investigating or resisting the same (collectively, "Claims") of any kind or nature that arise before, during or after the Term as a result of Tenant's breach of this Section.

12.3.Tenant shall not do or pennit to be done anything that will invalidate or increase the cost of any fire, environmental, extended coverage or any other insurance policy covering the Building or the Project, and shall comply with all rules, orders, regulations and requirements of the insurers of the Building and the Project, and Tenant shall promptly, upon demand, reimburse Landlord for any additional premium charged for such policy by reason of Tenant'sfailure to comply with the provisions of this Article.

12.4.Tenant shall keep all doors opening onto public corridors closed, except when in use for ingress and egress.

12.5.No additional locks or bolts of any kind shall be placed upon any of the doors or windows by Tenant, nor shall any changes be made to existing locks or the mechanisms thereof without Landlord's prior written consent.  Tenant shall, upon termination of this Lease, return to Landlord all keys to offices and restrooms either furnished to or otherwise procured by Tenant. In the event any key so furnished to Tenant is lost, Tenant shall pay to Landlord the cost of replacing the same or of changing the lock or locks opened by such lost key if Landlord shall

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deem it necessary to make such change.  Notwithstanding the foregoing, Landlord and Tenant acknowledge and agree that Tenant may, at Tenant's cost and expense, install its own integrated security system in the Premises (the "Tenant SecuritySystem"); provided, however, that Tenant shall obtain Landlord's prior written consent to such Tenant Security System and shall coordinate the installation and operation of any the Tenant Security System with Landlord to assure that the Tenant Security System (a) can accommodate multiple tenants within the Building and (b) integrates and does not interfere with (i) any Landlord security system in place as of the Term Commencement Date, for which Landlord makes no warranties about the functionality or integration of any such Landlord security system, and (ii) the Building's systems and equipment. Tenant shall be solely responsible, at Tenant's sole cost and expense, for monitoring and operating Tenant's Security System.  Tenant may configure the Tenant Security System to control access to a full floor leased by Tenant such that Tenant has exclusive (as between Tenant and other occupants of the Building) access to such full floor; provided that Landlord will at all times (subject to the terms and conditions of this Lease) be permitted access to the Premises and will be provided with a card key or other method required to achieve such access.

12.6.No awnings or other projections shall be attached to any outside wall of the Building.  No curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises other than Landlord's standard window coverings.  Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without Landlord'sprior written consent, nor shall any bottles, parcels or other articles be placed on the windowsills or items attached to windows that are visible from outside the Premises. Notwithstanding anything herein to the contrary, the solar installations (i.e., tint or film) existing on the windows as of the Execution Date will be permitted to remain in place duringtheTerm,andLandlordwillnotumeasonablywithholditsconsenttoTenant's installation, at Tenant's sole cost, of additional substantially similar solar installations as determined to be desirable by Tenant to insulate the North- and South-facing windows of the Premises.  No equipment, furniture or other items of personal property shall be placed on any exterior balcony without Landlord's prior written consent.

12.7.ExceptassetforthinSection12.7(a),nosign,advertisementornotice ("Signage") shall be exhibited, painted or affixed by Tenant on any part of the Premises or the Building without Landlord's prior written consent.  Signage shall conform to Landlord's design criteria.For any Signage, Tenant shall, at Tenant's own cost and expense, (a) acquire all permits for such Signage in compliance with Applicable Laws and (b) design, fabricate, install and maintain such Signage in a first-class condition. Tenant shall be responsible for reimbursing LandlordforcostsincurredbyLandlordinremovinganyofTenant'sSignageupon the expiration or earlier termination of the Lease.  Interior signs on entry doors to the Premises and the directory tablet shall be inscribed, painted or affixed for Tenant by Landlord at Tenant's sole cost and expense, and shall be of a size, color and type and be located in a place acceptable to Landlord.  The directory tablet shall be provided exclusively for the display of the name and location of tenants only.  Tenant shall not place anything on the exterior of the corridor walls or corridor doors other than Landlord's standard lettering.  Tenant shall have the right to Building standard lobby, suiteidentificationsignage andelevatorlobby signage onanyfloor fully occupied by Tenant.

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(a)Subject to the terms, conditions and provisions of this Section 12.7(a), Tenant shall be entitled to maintain, at its sole cost and expense, its one (1) existing exterior Building Sign and its listing on the shared monument sign existing as of the Execution Date (collectively, the "Existing Signage").  In the event Tenant wishes to change the Existing Signage at any time, the graphics, materials, size, color, design, lettering, lighting (if any), specifications and exact location of the replacement Signage (collectively, the "Signage Specifications") shall be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld. In addition, the Signage and all Signage Specifications therefor shall be subject to Tenant's receipt of all required permits and approvals from Governmental Authorities, and shall be subject to any CC&Rs (as defined below).  In the event Tenant does not receive the necessary permits and approvals for the Signage, Tenant's and Landlord's rights and obligations under the remaining provisions of this Lease shall not be affected. The cost of installation of all of Tenant's Signage, as well as all costs of design and construction of such Signage and all other costs associated with such Signage, including permits, maintenance and repair, shall be the sole responsibility of Tenant.  Should the Signage require maintenance or repairs, as determined in Landlord's reasonable judgment, Landlord shall have the right to provide written notice thereof to Tenant and Tenant shall cause such repairs and/or maintenance to be performed within thirty (30) days after receipt of such notice from Landlord at Tenant's sole cost and expense.  Should Tenant fail to perform such maintenance and repairs within the period described in the immediately preceding sentence, Landlord shall have the right to cause such work to be performed and to charge Tenant, as Additional Rent, for the cost of such work.  Upon the expiration or earlier termination of this Lease, Tenant shall, at Tenant's sole cost and expense, cause all Signage installed by or on behalf of Tenant to be removed from the Building's exterior and shall cause the Building to be restored to the condition existing prior to the placement of such Signage.  If Tenant fails to restore the Building as provided in the immediately preceding sentence on or before the expiration or earlier termination of this Lease, then Landlord may perform such work, and all costs and expenses incurred by Landlord in so performing such work shall be reimbursed by Tenant to Landlord within ten (10) days after Tenant's receipt of invoice therefor.  The immediately preceding sentence shall survive the expiration or earlier termination of this Lease. Should the name of the original Tenant change, then the Existing Signage may be modified at Tenant's sole cost and expense to reflect the new name, but only if the new name does not (i) relate to an entity that is of a character or reputation, or is associated with a political orientation or a faction that is inconsistent with the quality of the Building or would otherwise reasonably offend an institutional landlord of a project comparable to the Building, taking into consideration the level and visibility of such Existing Signage, or (ii) cause Landlord to be in default under any lease or license with another tenant of the Project.

12.8.TenantmayonlyplaceequipmentwithinthePremiseswithfloorloading consistent with the Building's structural design unless Tenant obtains Landlord's prior written approval.  Tenant may place such equipment only in a location designed to carry the weight of such equipment.

12.9.Tenant shall cause any equipment or machinery to be installed in the Premises so as to reasonably prevent sounds or vibrations therefrom from extending into the Common Area or other offices in the Project.

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12.10.Tenant shall not (a) do or permit anything to be done in or about the Premises that shall in any way obstruct or interfere with the rights of other tenants or occupants of the Project, or injure or annoy them, (b) use or allow the Premises to be used for immoral, unlawful or objectionable  purposes, (c) cause, maintain or permit any nuisance or waste in, on or about the Project or (d) take any other action that would in Landlord's  reasonable determination  in any manner adversely affect other tenants' quiet use and enjoyment of their space or adversely impact their  ability  to  conduct  business  in  a  professional  and  suitable  work  environment. Notwithstanding   anything  in  this  Lease  to  the  contrary, Tenant  may not  install  any security systems (including cameras) outside the Premises or that record sounds or images outside the Premises without Landlord's  prior written consent, which Landlord may withhold in its sole and absolute discretion.

12.11.Notwithstanding any other provision herein to the contrary, Tenant shall be responsible for all liabilities, costs and expenses arising out of or in connection with the compliance of the Premises with the Americans with Disabilities Act, 42 U.S.C. § 12101, et seq., and any state and local accessibility laws, codes, ordinances and rules (collectively, and together with regulations promulgated pursuant thereto, the "ADA"), and Tenant shall indemnify, save, defend (at Landlord's option and with counsel reasonably acceptable to Landlord) and hold the Landlord Indemnitees harmless from and against Claims arising out of any such failure of the Premises to comply with the ADA.  The Premises have not undergone inspection by a Certified Access Specialist (as defined in California Civil Code Section 55.52).  For the avoidance of doubt, "Lenders" shall also include historic tax credit investors and new market tax credit investors.  The provisions of this Section shall survive the expiration or earlier termination of this Lease.  Landlord will be responsible (at Landlord's expense and not as an Operating Expense) for causing the Common Areas to comply with the ADA in effect and applicable to the Common Areas as of the Execution Date.  Any cost incurred by Landlord to cause the Common Areas to continue to comply with the ADA, including due to changes to the Common Areas or the ADA after the Execution Date, may be included in Operating Expenses to the extent permitted by A rticle 9 above.

13.Rules and Regulations. CC&Rs. Parking Facilities and Common Area.

13.1.Tenant shall have the non-exclusive right, in common with others, to use the Common Area in conjunction with Tenant's use of the Premises for the Permitted Use, and such use of the Common Area and Tenant's use of the Premises shall be subject to the rules and regulations adopted by Landlord and attached hereto as Exhibit F, together with such other reasonable and nondiscriminatory rules and regulations as are hereafter promulgated by Landlord in its sole and absolute discretion (the "Rules and Regulations"), so long as the Rules and Regulations do not materially increase Tenant's obligations or materially decrease Tenant's rights under this Lease.  Tenant shall and shall ensure that its contractors, subcontractors, employees,  subtenants  and  invitees  faithfully  observe  and  comply  with  the  Rules  and Regulations.  Landlord shall not be responsible to Tenant for the violation or non-performance by any other tenant or any agent, employee or invitee thereof of any of the Rules and Regulations.

13.2.This Lease is subject to any recorded covenants, conditions or restrictions on the Project or Property, as the same may be amended, amended and restated, supplemented or

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otherwise modified from time to time (the "CC&Rs"); provided that any such amendments, restatements,supplementsormodificationsdonotmateriallymodify Tenant's rightsor obligations hereunder.

13.3.Tenant shall have a non-exclusive, irrevocable license to use three (3) parking spaces for every one thousand (I,000)  square feet of Rentable Area within the Premises then leased by Tenant within the parking facilities serving the Project in common on an unreserved basis with other tenants of the Project during the Term at no additional cost.

13.4.Tenant agrees not to unreasonably overburden the parking facilities and agrees to cooperate with Landlord and other tenants in the use of the parking facilities.Landlord reserves the right to determine that parking facilities are becoming overcrowded and to limit Tenant's use thereof. Upon such determination, Landlord may reasonably allocate parking spaces among Tenant and other tenants of the Building or the Project.Nothing in this Section, however, is intended to create an affirmative duty on Landlord's part to monitor parking.

13.5.Subject to the terms of this Lease including the Rules and Regulations and the rights of other tenants of the Project, Tenant shall have the non-exclusive right to access the freight loading dock, at no additional cost.

13.6.Subject to providing reasonable prior notice to Landlord or its Property Manager and compliance with reasonable scheduling and security requirements established by Landlord, Tenant will have the right to access the mechanical room located within Suite 420/450 of the Building for the purpose of viewing the Building system controls affecting the Premises, and will be given "read only" access to the Building management system for this purpose. For clarity, Tenant will not be permitted to adjust the Building management system, and any necessary adjustments will be made by Landlord.

14.Project Control by Landlord.

14.1.Landlord reserves full control over the Building and the Project to the extent not inconsistent with Tenant's enjoyment of the Premises as provided by this Lease.  This reservation includes Landlord's right to subdivide the Project; convert the Building to condominium units; change the size of the Project by selling all or a portion of the Project or adding real property and any improvements thereon to the Project; grant easements and licenses to third parties; maintain or establish ownership of the Building separate from fee title to the Property; make additions to or reconstruct portions of the Building and the Project; install, use, maintain, repair, replace and relocate for service to the Premises and other parts of the Building or the Project pipes, ducts, conduits, wires and appurtenant fixtures, wherever located in the Premises, the Building or elsewhere at the Project; and alter or relocate any other Common Area or facility, including private drives, lobbies, entrances and landscaping; provided, however, that such rights shall be exercised in a way that does not materially adversely affect Tenant's beneficial use and occupancy of the Premises, including the Permitted Use and Tenant's access to the Premises.  Tenant acknowledges that Landlord specifically reserves the right to allow the exclusive use of corridors and restroom facilities located on specific floors to one or more tenants occupying such floors; provided, however, that Tenant shall not be deprived of the use of the corridors

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reasonably required to serve the Premises or of restroom facilities serving the floor upon which the Premises are located.

14.2.Possession of areas of the Premises necessary for utilities, services, safety and operation of the Building is reserved to Landlord.

14.3.Tenant shall, at Landlord's request, promptly execute such further documents as may be reasonably appropriate to assist Landlord in the performance of its obligations hereunder; provided that Tenant need not execute any document that creates additional liability for Tenant or that deprives Tenant of the quiet enjoyment and use of the Premises as provided for in this Lease.

14.4.Landlord may, at any and all reasonable times during non-business hours (or during business hours, if (a) with respect to Subsections 14.4(u) through 14.4(y), Tenant so requests, and (b) with respect to Subsection 14.4(z), if Landlord so requests), and upon twenty­ four (24) hours'  prior notice (which may be oral or by email to the office manager or other Tenant-designated individual at the Premises; but provided that no time restrictions shall apply or advance notice be required if an emergency necessitates immediate entry), enter the Premises to (u) inspect the same and to determine whether Tenant is in compliance with its obligations hereunder, (v) supply any service Landlord is required to provide hereunder, (w) alter, improve or repair any portion of the Building other than the Premises for which access to the Premises is reasonably necessary, (x) post notices of nonresponsibility, (y) access the telephone equipment, electrical substation and fire risers and (z) show the Premises to prospective tenants during the final year of the Term and current and prospective purchasers and lenders at any time.  In connection with any such alteration, improvement or repair as described in Subsection 14.4(w), Landlord may erect in the Premises or elsewhere in the Project scaffolding and other structures reasonably required for the alteration, improvement or repair work to be performed.  In no event shall Tenant's Rent abate as a result of Landlord's activities pursuant to this Section; provided, however, that all such activities shall be conducted in a commercially reasonable manner so as not to cause unreasonable interference with Tenant's use and occupancy to the extent reasonably possible.   Landlord shall at all times retain a key with which to unlock all of the doors in the Premises.   If an emergency necessitates immediate access to the Premises, Landlord may use whatever force is necessary to enter the Premises, and any such entry to the Premises shall not constitute a forcible or unlawful entry to the Premises, a detainer of the Premises, or an eviction of Tenant from the Premises or any portion thereof.

14.5.Landlord and Tenant acknowledge that there is a mechanical room within the Premises that contains equipment serving the third (3'd) and fourth (4'h) floors of the Building (the "Mechanical Room"). The Mechanical Room is identified on Exhibit A attached hereto. Landlordanditscontractors,employees andagentsshallatalltimeshaveaccess tothe Mechanical Room for the purpose of repairing and maintaining equipment in the Mechanical Roomandotherwiseasrequiredintheexerciseofgoodproperty managementpractices; provided that Landlord will endeavor to provide Tenant with reasonable prior notice (which notice may be oral) of any scheduled access to the Mechanical Room (with no such notice required for emergency entries). All costs to repair, maintain and replace (if required) the Mechanical Room and the equipment located therein will be equitably allocated among the tenants whose premises are served by the Mechanical Room, based on the proportionate usage by

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each tenant of the equipment located within the Mechanical Room, as determined by Landlord. All such amounts will be paid by Tenant to Landlord as Additional Rent within thirty (30) days after invoicing therefor.  In no event will Tenant make any alterations or perform any work within the Mechanical Room, and such Mechanical Room is reserved to Landlord for its exclusive use and access.

15.Quiet Enjoyment.  Landlord covenants that Tenant, upon paying the Rent and performing its obligations contained in this Lease, may peacefully and quietly have, hold and enjoy the Premises, free from any claim by Landlord or persons claiming under Landlord, but subject to all of the terms and provisions hereof, provisions of Applicable Laws and rights of record to which this Lease is or may become subordinate.  This covenant is in lieu of any other quiet enjoyment covenant, either express or implied.

16.Utilities and Services.

16.1.Tenant shall pay for all water (including the cost to service, repair and replace reverse osmosis, de-ionized and other treated water), gas, heat, light, power, telephone, internet service, cable television, other telecommunications and other utilities supplied to the Premises, together with any fees, surcharges and taxes thereon.  If any such utility is not separately metered to Tenant, Tenant shall pay Tenant's Adjusted Share of all charges of such utility jointly metered with other premises as Additional Rent or, in the alternative, Landlord may, at its option, monitor the usage of such utilities by Tenant and in the event Landlord determines that Tenant's use is over-standard, charge Tenant with the cost of purchasing, installing and monitoring such metering equipment, which cost shall be paid by Tenant as Additional Rent.  Landlord may base its bills for utilities on reasonable estimates; provided that Landlord adjusts such billings promptly thereafter or as part of the next Landlord's Statement to reflect the actual cost of providing utilities to the Premises.  To the extent that Tenant uses more than Tenant's Pro Rata Share of any utilities, then Tenant shall pay Landlord for Tenant's Adjusted Share of such utilities to reflect such excess.  In the event that the Building or Project is less than fully occupied during a calendar year, Tenant acknowledges that Landlord may extrapolate utility usage that varies depending on the occupancy of the Building or Project (as applicable) to equal Landlord's reasonable estimate of what such utility usage would have been had the Building or Project, as applicable, been ninety-five percent (95%) occupied during such calendar year; provided, however, that Landlord shall not recover more than one hundred percent (100%) of the cost of such utilities.

16.2.Landlord shall not be liable for, nor shall any eviction of Tenant result from, the failure to furnish any utility or service, whether or not such failure is caused by accidents; breakage; casualties (to the extent not caused by the party claiming Force Majeure); Severe Weather Conditions (as defined below); physical natural disasters (but excluding weather conditions that are not Severe Weather Conditions); strikes, lockouts or other labor disturbances or labor disputes (other than labor disturbances and labor disputes resulting solely from the acts or omissions of the party claiming Force Majeure); acts of terrorism; riots or civil disturbances; wars orinsurrections; shortages ofmaterials(whichshortages arenot unique totheparty claiming Force Majeure); government regulations, moratoria or other governmental actions, inactions or delays; failures by third parties to deliver gas, oil or another suitable fuel supply, or

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inability of the party claiming Force Majeure, by exercise of reasonable diligence, to obtain gas, oil or another suitable fuel; or other causes beyond the reasonable control of the party claiming that Force Majeure has occurred (collectively, "Force Majeure").  In the event of such failure, Tenant shall not be entitled to termination of this Lease or any abatement or reduction of Rent, nor shall Tenant be relieved from the operation of any covenant or agreement of this Lease, except as set forth below.  "Severe Weather Conditions" means weather conditions that are materially worse than those that reasonably would be anticipated for the Property at the applicable time based on historic meteorological records.  Notwithstanding anything to the contrary in this Lease, if, for more than five (5) consecutive business days following written notice to Landlord and as a direct result of Landlord's gross negligence or willful misconduct (and except to the extent that such failure is caused by any other factor, including any action or inaction of a Tenant Party (as defined below)), the provision of utilities to all or a material portion of the Premises that Landlord must provide pursuant to this Lease is interrupted (a "Material Services Failure"), then Tenant's Base Rent (or, to the extent that less than all of the Premises are affected, a proportionate amount (based on the Rentable Area of the Premises that is rendered unusable) of Base Rent) shall thereafter be abated until the Premises are again usable by Tenant for the Permitted Use; provided, however, that, if Landlord is diligently pursuing the restoration of such utilities and Landlord provides substitute utilities reasonably suitable for Tenant's continued use and occupancy of the Premises for the Permitted Use (e.g., supplying potable water or portable air conditioning  equipment), then Base Rent shall not be abated. During any Material Services Failure, Tenant will cooperate with Landlord to arrange for the provision of any interrupted utility services on an interim basis via temporary measures until final corrective measures can be accomplished, and Tenant will permit Landlord the necessary access to the Premises to remedy such Material Service Failure.  In the event of any interruption of utilities that Landlord must provide pursuant to this Lease, regardless of the cause, Landlord shall diligently pursue the restoration of such other utilities. Notwithstanding anything in this Lease to the contrary, but subject to Article 24 (which shall govern in the event of a casualty), the provisions of this Section shall be Tenant's sole recourse and remedy in the event of an interruption of utilities to the Premises.

16.3.Tenant shall pay for, prior to delinquency of payment therefor, any utilities and services that may be furnished to the Premises during or, if Tenant occupies the Premises after the expiration or earlier termination of the Term, after the Term, beyond those utilities provided by Landlord, including telephone, internet service, cable television and other telecommunications, together with any fees, surcharges and taxes thereon. Upon Landlord's demand, utilities and services provided to the Premises that are separately metered shall be paid by Tenant directly to the supplier of such utilities or services.

16.4.Tenant shall not, without Landlord's prior written consent, use any device in the Premises (including data processing machines) that will in any way (a) increase the amount of ventilation, air exchange, gas, steam, electricity or water required or consumed in the Premises based upon Tenant's Pro Rata Share of the Building or Project (as applicable) beyond the existing capacity of the Building or the Project usually furnished or supplied for the Permitted Use or (b) exceed Tenant's Pro Rata Share of the Building's or Project's (as applicable) capacity to provide such utilities or services.

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16.5.If Tenant shall require utilities or services in excess of those usually furnished or supplied for tenants in similar spaces in the Building or the Project by reason of Tenant's equipment or extended hours of business operations, then Tenant shall first procure Landlord's consent for the use thereof, which consent Landlord may condition upon the availability of such excess utilities or services, and Tenant shall pay as Additional Rent an amount equal to the cost of providing such excess utilities and services.

16.6.LandlordshallprovidewaterinCommonAreaforlavatoryandlandscaping purposesonly,whichwatershallbefromthelocalmunicipalorsimilarsource;provided, however,that if Landlord determines that Tenant requires, uses or consumeswater provided to the Common Area for any purpose other than ordinary lavatory purposes, Landlord may install a watermeter ("TenantWater Meter")and thereby measure Tenant's water consumptionfor all purposes.Tenant shall pay Landlord for the costs of any Tenant Water Meter and the installation and maintenance thereof during the Term. If Landlord installs a Tenant Water Meter, Tenant shall pay for water consumed, as shown on such meter, as and when bills are rendered.If Tenant fails to timely make such payments, Landlord may pay such charges and collect the same from Tenant.Any such costsor expensesincurredor paymentsmade by Landlordforany of the reasonsorpurposesstatedin thisSectionshallbe deemedto be AdditionalRentpayableby Tenant and collectible by Landlord as such.

16.7.Landlord reserves the right to stop service of the elevator, plumbing, ventilation, air conditioning and utility systems, when Landlord deems necessary or desirable, due to accident, emergency or the need to make repairs, alterations or improvements, until such repairs, alterations or improvements shall have been completed, and Landlord shall further have no responsibility or liability for failure to supply elevator facilities, plumbing, ventilation, air conditioning or utility service when prevented from doing so by Force Majeure or, to the extent permitted by Applicable Laws, Landlord's negligence.  Without limiting the foregoing, it is expressly understood and agreed that any covenants on Landlord's part to furnish any service pursuant to any of the terms, covenants, conditions, provisions or agreements of this Lease, or to perform any act or thing for the benefit of Tenant, shall not be deemed breached if Landlord is unable to furnish or perform the same by virtue of Force Majeure.

16.8.There are two (2) generators currently servicing the Premises.  The "North Building Generator" serves portions of the Premises, excluding the Intrexon Space, and is also used by other occupants of the Building.  The "South Building Generator” serves only those portions of the Premises identified as the Intrexon Space and is not shared with other occupants of the Building.  The North Building Generator and South Building Generator may be collectively referred to herein as the "Generators." From and after the Term Commencement Date, Landlord will maintain the North Building Generator.  Tenant shall be entitled to use up to 100 kW of electricity produced by the Generator during power outages.  In the event Tenant determines that it requires additional generator capacity, Landlord will either (a) if there is excess capacity in the North Building Generator, which excess capacity is not needed for Common Areas or existing or future tenants or occupants of the Project (as determined by Landlord in its sole discretion), then Landlord may increase the above-referenced 100 kW capacity allocation to accommodate Tenant's increased requirement, or (b) identify a location at the Project where Tenant can install a separate back-up generator, which separate generator will be subject to the

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terms and conditions of this Lease, including this Section and Article 17, and all obligations and costs to purchase, install, maintain and repair or replace any additional generator will be borne by Tenant.  The cost of maintaining, repairing and replacing the North Building Generator shall be equitably allocated by Landlord among the tenants entitled to use the North Building Generator. Landlord will have the right to audit the use of the North Building Generator to confirm that Tenant is not using more than its allocated portion of the capacity of the North Building Generator.  In the event it is found that Tenant is using more than its allocated portion of the capacity of the North Building Generator, Tenant will immediately reduce its use so that it does not exceed 100 kW and will pay the cost of Landlord's audit.  Tenant shall maintain, repair and (if necessary) replace the South Building Generator at its sole cost and expense. Tenant will not install any underground fuel storage tanks and any Hazardous Materials used in connection with the South Building Generator will be Tenant's responsibility and subject to the terms and conditions of this Lease, including all surrender obligations.  Landlord expressly disclaims any warranties with regard to the Generators or the installation or condition thereof, including any warranty of merchantability or fitness for a particular purpose. Landlord shall maintain the North Building Generator in good working condition, but shall not be liable for any failure to make any repairs or to perform any maintenance that is an obligation of Landlord unless such failure shall persist for an unreasonable time after Tenant provides Landlord with written notice of the need for such repairs or maintenance.  The provisions of Section 16.2 of this Lease shall apply to the Generators. The terms and conditions of this Lease, including Tenant's insurance and indemnity obligations, shall apply to such Generators which shall be a part of the Premises for such purposes.   In no event shall Landlord have any liability to Tenant in connection with the Generators or their failure to operate in an emergency situation.  Tenant shall surrender (but not remove) the South Building Generator in good working order upon the expiration or earlier termination of this Lease, fully decommissioned and free of any residual Hazardous Materials.

16.9.For the Premises, Landlord shall maintain and operate those HVAC systems which serve other tenants of the Building and also serve the Premises and are used for the Permitted Use and exist as of the Execution Date only ("Base HVAC"). For those HVAC systems which exclusively serve the Premises (e.g., the HVAC systems serving the Intrexon Space) (collectively, the "Dedicated HVAC"), Tenant shall have sole responsibility to repair, maintainandreplacesuchDedicatedHVAC,asnecessary, andLandlordshallhaveno obligations with respect thereto (except as provided below).Tenant shall, at its sole cost and expense, maintain and keep the Dedicated HVACingoodcondition andrepair and shall otherwise be solely responsible for any repair, replacement and maintenance costs with respect to the Dedicated HVAC.Tenant shall keep in full force and effect during the Term (and occupancy by Tenant, if any, afterterminationofthisLease)a preventative maintenance contract for quarterly, semi-annual, and annual HVAC inspections and maintenance of the Dedicated HVAC using a qualified, licensed, bonded service provider reasonably approved by Landlord. If requested in writing by Landlord, Tenant shall provide to Landlord copies of the Dedicated HVAC maintenance contracts and the Dedicated HVAC maintenance reports on a quarterly basis. In the event Landlord so elects, Landlord may take over Tenant'sresponsibilities with respect to the Dedicated HVAC, in which case all costs incurred to repair, maintain and replace (as required) such DedicatedHVAC will be paid by Tenant to Landlord as Additional Rent within thirty (30) days after invoicing therefor.Notwithstanding anything to the contrary in this

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Section, Landlord shall have no liability, and Tenant shall have no right or remedy, on account of any interruption or impairment in HVAC services; provided that as to the Base HVAC only, Landlord diligently endeavors to cure any such interruption or impairment.

16.10.For any utilities serving the Premises for which Tenant is billed directly by such utility provider, Tenant agrees to furnish to Landlord (a) any invoices or statements for such utilities within thirty (30) days after Tenant's  receipt thereof, (b) within thirty (30) days after Landlord's request, any other utility usage information reasonably requested by Landlord, and (c) within thirty (30) days after each calendar year during the Term, authorization to allow Landlord to access Tenant's usage information necessary for Landlord to complete an ENERGY STAR® Statement of Performance (or similar comprehensive utility usage report (e.g., related to Labs21), if requested by Landlord) and any other information reasonably requested by Landlord for the immediately preceding year; and Tenant shall comply with any other energy usage or consumption requirements required by Applicable Laws.  Tenant shall retain records of utility usage at the Premises, including invoices and statements from the utility provider, for at least sixty (60) months, or such other period of time as may be requested by Landlord.  Tenant acknowledges that any utility information for the Premises, the Building and the Project may be shared with third parties, including Landlord's consultants and Governmental Authorities. In the event that Tenant fails to comply with this Section, Tenant hereby authorizes Landlord to collect utility usage information directly from the applicable utility providers.  In addition to the foregoing, Tenant shall comply with all Applicable Laws related to the disclosure and tracking of energy consumption at the Premises.  The provisions of this Section shall survive the expiration or earlier termination of this Lease.

16.11.Tenant will perform all janitorial and trash removal service at the Premises using a vendor reasonably approved by Landlord, at Tenant's sole cost and expense.   Tenant will ensure that the Premises are kept and maintained in a manner consistent with a Class A lab and office building at all times.

17.Alterations.

17.1.Tenant shall make no alterations, additions or improvements other than the Tenant Improvements in or to the Premises or engage in any construction, demolition, reconstruction, renovation or other work (whether major or minor) of any kind in, at or serving the Premises ("Alterations") without Landlord's  prior written approval, which approval Landlord shall not unreasonably withhold; provided, however, that, in the event any proposed Alteration affects (a) any structural portions of the Building, including exterior walls, the roof, the foundation or slab systems (including barriers and subslab systems) or the core of the Building, or (b) the exterior of the Building, then Landlord may withhold its approval in its sole and absolute discretion. Tenant shall, in making any Alterations, use only those architects, contractors, suppliers and mechanics of which Landlord has given prior written approval, which approval shall be in Landlord's reasonable discretion; provided that Landlord may require that any architects, contractors, suppliers and mechanics who will perform services at the Building satisfy Landlord's standard qualification requirements for contractors.  In seeking Landlord's approval, Tenant shall provide Landlord, at least fifteen (15) business days in advance of any proposed construction, with plans, specifications, bid  proposals,  certified  stamped  engineering  drawings  and  calculations  by

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Tenant's  engineer of record or architect of record (including connections to  the Building's structural system, modifications to the Building's envelope, non-structural penetrations in slabs or walls, and modifications or tie-ins to life safety systems), work contracts, requests for laydown areas and such other information concerning the nature and cost of the Alterations as Landlord may reasonably request.  In no event shall Tenant use or Landlord be required to approve any architects, consultants, contractors, subcontractors or material suppliers that Landlord reasonably believes could cause labor disharmony or may not have sufficient experience, in Landlord's reasonable opinion, to perform work in an occupied Class "A" laboratory research building and in tenant-occupied lab areas.  Notwithstanding the foregoing, Tenant may make strictly cosmetic changes to the Premises that do not require any permits or more than three (3) total contractors and subcontractors ("Cosmetic Alterations") without Landlord's consent; provided that (y) the cost of any Cosmetic Alterations does not exceed One Hundred Thousand Dollars ($100,000) in any one instance or annually in the aggregate, (z) such Cosmetic Alterations do not (i) require any structural or other substantial modifications to the Premises, (ii) require any changes to or adversely affect the Building systems, (iii) affect the exterior of the Building or (iv) trigger any requirement under Applicable Laws that would require Landlord to make any alteration or improvement to the Premises, the Building or the Project.  Landlord will notify Tenant, at the time of Landlord's consent to such Alterations (provided Tenant requests that Landlord make such determination at the time it requests consent), which of the Alterations Landlord will require Tenant to remove upon the expiration or earlier termination of this Lease.

17.2.Tenant shall not construct or permit to be constructed partitions or other obstructions that might interfere with free access to mechanical installation or service facilities of the Building or with other tenants' components located within the Building, or interfere with the moving of Landlord's equipment to or from the enclosures containing such installations or facilities.

17.3.Tenant shall accomplish any work performed on the Premises or the Building in such a manner as to permit any life safety systems to remain fully operable at all times.

17.4.Any work performed on the Premises, the Building or the Project by Tenant or Tenant's contractors shall be done at such times and in such manner as Landlord may from time to time designate.   Tenant covenants and agrees that all work done by Tenant or Tenant's contractors shall be performed in full compliance with Applicable Laws. Within thirty (30) days after completion of any Alterations, Tenant shall provide Landlord with complete "as built" drawing print sets and electronic CADD files on disc (or files in such other current format in common use as Landlord reasonably approves or requires) showing any changes in the Premises, as well as a commissioning report prepared by a licensed, qualified commissioning agent hired by Tenant and approved by Landlord for all new or affected mechanical, electrical and plumbing systems.  Any such "as built" plans shall show the applicable Alterations as an overlay on the Building as-built plans; provided that Landlord provides the Building "as built" plans to Tenant.

17.5.Before commencing any Alterations or Tenant Improvements, Tenant shall give Landlord at least fifteen (15) business days' prior written notice of the proposed commencement of such work and the names and addresses of the persons supply labor or materials therefor so that Landlord may enter the Premises to post and keep posted thereon and therein notices or to

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take  any  further  action  that  Landlord  may  reasonably  deem  proper for  the  protection ofLandlord's interest in the Project.

17.6.Tenant shall repair any damage to the Premises caused by Tenant's removal of any property from the Premises.  During any such restoration period, Tenant shall pay Rent to Landlord as provided herein as if such space were otherwise occupied by Tenant. The provisions of this Section shall survive the expiration or earlier termination of this Lease.

17.7.The Premises plus any Alterations (not previously required by Landlord to be removed); Tenant Improvements (not previously required by Landlord to be removed); attached equipment, attached fixtures; and other additions and improvements attached to or built into the Premises made by either of the parties (including all floor and wall coverings; paneling; sinks and related plumbing fixtures; laboratory benches; exterior venting fume hoods; walk-in freezers and  walk-in  refrigerators  (cold  rooms);  ductwork;  conduits; electrical  panels  and  circuits; attached machinery and equipment; and built-in furniture and cabinets, in each case, together with all additions and accessories thereto), shall (unless, prior to such construction or installation, Landlord elects otherwise in writing) at all times remain the property of Landlord, shall remain in the  Premises and shall  (unless, prior to construction or installation thereof, Landlord elects otherwise in writing) be surrendered to Landlord upon the expiration or earlier termination of this Lease.  For the avoidance of doubt, the items listed on Exhibit H attached hereto (which Exhibit H  may  be  updated  by  Tenant  from  and  after  the  Term  Commencement Date, subject to Landlord's written consent) and Tenant's  trade fixtures and movable furniture and equipment constitute Tenant's property and shall be removed by Tenant upon the expiration or earlier termination of the Lease.

17.8.Notwithstanding any other provision of this Article to the contrary, in no event shall Tenant remove any improvement from  the Premises as to which Landlord contributed payment, including the Tenant Improvements, without Landlord's prior written consent, which consent Landlord may withhold in its sole and absolute discretion.

17.9.If Tenant shall fail to remove any of its property from the Premises prior to the expiration or earlier termination of this Lease, then Landlord may, at its option, remove the same in any manner that Landlord shall choose and store such effects without liability to Tenant for loss thereof or damage thereto, and Tenant shall pay Landlord, upon demand, any costs and expenses incurred due to such removal and storage or Landlord may, at its sole option and without notice to Tenant, sell such property or any portion thereof at private sale and without legal process for such price as Landlord may obtain and apply the proceeds of such sale against any (a) amounts due by Tenant to Landlord under this Lease and (b) any expenses incident to the removal, storage and sale of such personal property.

17.10.Tenant shall pay to Landlord an amount equal to five percent (5%) of the cost to Tenant of all Alterations to cover Landlord's overhead and expenses for plan review, engineering review, coordination, scheduling and supervision thereof.  For purposes of payment of such sum, Tenant shall submit to Landlord copies of all bills, invoices and statements covering the costs of such charges, accompanied by payment to Landlord of the fee set forth in this Section.  Tenant shall reimburse Landlord for any extra expenses incurred by Landlord by reason of faulty work

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done by Tenant or its contractors, or by reason of delays caused by such work, or by reason of inadequate clean-up.

17.11.Within sixty (60) days after final completion of the Tenant Improvements or any Alterations performed by Tenant with respect to the Premises, Tenant shall submit to Landlord documentation showing the amounts expended by Tenant with respect to such Tenant Improvements and Alterations, together with supporting documentation reasonably acceptable to Landlord.

17.12.Tenant shall take, and shall cause its contractors to take, commercially reasonable steps to protect the Premises during the performance of any Alterations or Tenant Improvements, including covering or temporarily removing any window coverings so as to guard against dust, debris or damage.

17.13.Tenant shall require its contractors and subcontractors performing work on the Premises  to  name  Landlord and  its  affiliates  and  Lenders as  additional  insureds on  their respective insurance policies.

18.Repairs and Maintenance.

18.1.Subject to Section 18.2 below, Landlord shall repair and maintain the structural and exterior portions and Common Area of the Building and the Project, including roofing and covering materials; foundations (excluding any architectural slabs, but including any structural slabs); exterior walls; plumbing; fire sprinkler systems (if any); Base HVAC systems; elevators; and electrical systems installed or furnished by Landlord.

18.2.Except as otherwise set forth in this Lease, Tenant shall at Tenant's sole cost and expense maintain and keep the interior of the Premises and every part thereof (and all equipment, systems and facilities serving the Premises, regardless of where such equipment, systems and facilities are located) in good condition and repair, damage thereto from ordinary wear and tear excepted, and shall, within ten (10) days after receipt of written notice from Landlord, provide to Landlord any maintenance records that Landlord reasonably requests.   Landlord may elect to perform repairs, maintenance and replacements as required for any mechanical, electrical or plumbing or process systems (such as any RO/DI system, electric steam boilers, or similar equipment) serving the Premises, or may elect to require Tenant to repair and maintain all or any of such systems that exclusively serve the Premises.  As to any systems that Landlord elects to repair and maintain, all costs to repair, maintain and replace (if required) such system or equipment will be payable by Tenant to Landlord as Additional Rent within thirty (30) days after invoicing therefor.  In the event any such systems or equipment serve multiple tenants, the cost of repair, maintenance and replacement will be equitably allocated among the tenants using the applicable system or equipment based on their relative usage, as determined by Landlord. In the event Landlord elects to have Tenant perform all repairs, maintenance and replacement of any such systems or equipment exclusively serving the Premises, Tenant will perform such repairs, maintenance  and  replacement  required  to  keep  such  systems  in  good  working  order  and condition, at Tenant's sole cost.  Tenant will be required to engage contractors for such purposes that are reasonably approved by Landlord and will provide Landlord with copies of all repair and maintenance records relating to such systems or equipment.  Tenant shall, upon the expiration or

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sooner  termination  of  the Term,  surrender  the Premises  and  all  systems and equipment  that Tenant is required to maintain hereunder to Landlord in as good a condition as when received and  with  the  Tenant  Improvements   in  substantially  the  same  condition  as  existed   when completed,  ordinary wear and tear excepted; and shall, at Landlord's  request and Tenant's sole cost and expense, remove all telephone and data systems, wiring and equipment installed or used by Tenant from the Premises, and repair any damage to the Premises caused thereby.  Landlord shall have no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof

18.3.Landlord shall not be liable for any failure to make any repairs or to perform any maintenance that is Landlord's  obligation pursuant to this Lease unless such failure shall persist for an unreasonable  time after Tenant provides Landlord with written notice of the need of such repairs  or maintenance.  Tenant waives its rights under Applicable Laws now or hereafter in effect to make repairs at Landlord's expense

18.4.If any excavationshall be made upon land adjacent to or under the Building, or shall be authorizedto be made, Tenant shall afford to the person causing or authorized to cause such excavation,license to enter the Premises for the purpose of performing such work as such personshalldeemnecessaryor desirabletopreserve and protect the Buildingfrominjury or damageandtosupportthesamebyproperfoundations,withoutanyclaimfordamagesor liability against Landlord and without reducing or otherwise affecting Tenant's obligations under this Lease.Landlord will cause any parties performing work pursuant to this Section 18.4 to use commercially reasonable efforts to minimize any interference with Tenant's use and occupancy of the Premises.

18.5.This Article relates to repairs and maintenance arising in the ordinary course of operation of the Building and the Project. In the event of a casualty described in Article 24, Article 24 shall apply in lieu of this Article. In the event of eminent domain, Article 25 shall apply in lieu of this Article.

18.6.CostsincurredbyLandlordpursuantto thisArticleshallconstituteOperating Expenses, unless expressly excludedby this Lease or otherwise payable by Tenant as Additional Rent.

19.Liens.

19.1.Subject to the immediatelysucceeding sentence, Tenant shall keep the Premises, theBuildingandtheProjectfreefromany liensarisingoutofworkor servicesperformed, materials furnishedto or obligationsincurredby Tenant. Tenant further covenants and agrees that any mechanic's or materialman's lien filed against the Premises, the Building or the Project for work or services claimed to have been done for, or materials claimed to have been furnished to, or obligations incurred by Tenant shallbe discharged or bonded by Tenant within ten (10) days after Tenant's receipt of notice of the filing thereof, at Tenant'ssole cost and expense.

19.2.Should Tenant fail to discharge or bond against any lien of the nature described in Section 19.1, Landlord may, at Landlord's election, pay such claim or post a statutory lien bond or otherwiseprovidesecuritytoeliminatethelien as a claimagainsttitle,and Tenantshall

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immediately reimburse Landlord for the costs thereof as Additional Rent. Tenant shall indemnify, save,defend(atLandlord'soptionandwithcounselreasonably acceptable to Landlord) and hold the Landlord Indemnitees harmless from and against any Claims arising from any such liens, including any administrative, court or other legal proceedings related to such liens.

19.3.In the event that Tenant leases or finances the acquisition of office equipment, furnishings or other personal property of a removable nature utilized by Tenant in the operation of Tenant's business, Tenant warrants that any Uniform Commercial Code financing statement shall, upon its face or by exhibit thereto, indicate that such financing statement is applicable only to removable personal property of Tenant located within the Premises.  In no event shall the address of the Premises, the Building or the Project be furnished on a financing statement without qualifying language as to applicability of the lien only to removable personal property located in an identified suite leased by Tenant. Should any holder of a financing statement record or place of record a financing statement that appears to constitute a lien against any interest of Landlord or against equipment that may be located other than within an identified suite leased by Tenant, Tenant shall, within ten (10) days after filing such financing statement, cause (a) a copy of the lender security agreement or other documents to which the financing statement pertains to be furnished to Landlord to facilitate Landlord's  ability to demonstrate that the lien of such financing statement is not applicable to Landlord's  interest and (b) Tenant's  lender to amend such financing statement and any other documents of record to clarify that any liens imposed thereby are not applicable to any interest of Landlord in the Premises, the Building or the Project.

20.Estoppel Certificate.   Tenant shall, within ten (I0)  days after receipt of written notice from Landlord, execute, acknowledge and deliver a statement in writing substantially in the form attached to this Lease as Exhibit I, or on any other commercially reasonable form reasonably requested by a current or proposed Lender or encumbrancer or proposed purchaser, (a) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified is in full force and effect) and the dates to which rental and other charges are paid in advance, if any, (b) acknowledging that there are not, to Tenant's  knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed, and (c) setting forth such further information with respect to this Lease or the Premises as may be requested thereon.  Any such statements may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the Property. Tenant's failure to deliver any such statement within such prescribed time, after a second notice and two (2) business day cure period, shall, at Landlord's option, constitute a Default (as defined below) under this Lease, and, in any event, shall be binding upon Tenant that the Lease is in full force and effect and without modification except as may be represented by Landlord in any certificate prepared by Landlord and delivered to Tenant for execution.

21.Hazardous Materials.

21.1.Tenant has not and shall not cause or permit any Hazardous Materials (as defined below) to be brought upon, kept or used in or about the Premises, the Building or the Project in violation of Applicable Laws by Tenant or any of its employees, agents, contractors or invitees (collectively with Tenant, each a "Tenant Party").  If (a) Tenant breaches such obligation, (b) the

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presence of Hazardous Materials as a result of such a breach results in contamination of the Project,anyportionthereof,orany adjacentproperty, (c)contaminationofthePremises otherwise occurs during the Term or any prior occupancy or extension or renewal hereof or holding over hereunder or (d) contamination of the Project occurs as a result of Hazardous Materials that are placed on or under or are released into the Project by a Tenant Party, then Tenantshallindemnify,save,defend(atLandlord'soptionandwithcounselreasonably acceptable to Landlord) and hold the Landlord Indemnitees harmless from and against any and all Claims of any kind or nature, including (w) diminution in value of the Project or any portion thereof, (x) damages for the loss or restriction on use of rentable or usable space or of any amenity of the Project, (y) damages arising from any adverse impact on marketing of space in the Project or any portion thereof and (z) sums paid in settlement of Claims that arise before, during or after the Term as a result of such breach or contamination.This indemnification by Tenant includes costs incurred in connection with any investigation of site conditions or any clean-up, remedial, removal or restoration work required by any Governmental Authority because of Hazardous Materials present in the air, soil or groundwater above, on, under or about the Project. Without limiting the foregoing, if the presence of any Hazardous Materials in, on, under or about the Project, any portion thereof or any adjacent property caused or permitted by any Tenant Party results in any contamination of the Project, any portion thereof or any adjacent property, then Tenant shall promptly take all actions at its sole cost and expense as are necessary to return the Project, any portion thereof or any adjacent property to a condition as close as commercially practicable to its condition existing prior to the time of such contamination; provided that Landlord's written approval of such action shall first be obtained, which approval Landlord shall not unreasonably withhold; and provided, further, that it shall be reasonable for Landlord to withhold its consent if such actions could have a material adverse long-term or short-term effect on the Project, any portion thereof or any adjacent property.Tenant'sobligations under this Section shall not be affected, reduced or limited by any limitation on the amount or type of damages, compensation or benefits payable by or for Tenant under workers' compensation acts, disability benefit acts, employee benefit acts or similar legislation. Notwithstanding the foregoing,Landlordshallindemnify,save,defend(atTenant's optionandwithcounsel reasonably acceptable to Tenant) and hold the Tenant Parties harmless from and against any and all Claims resulting from the presence of Hazardous Materials at the Project in violation of Applicable Laws as of the Execution Date, unless placed at the Project by a Tenant Party.

21.2.Landlord acknowledges that it is not the intent of this Article to prohibit Tenant from operating its business for the Permitted Use.Tenant may operate its business according to the custom of Tenant's industry so long as the use or presence of Hazardous Materials is strictly and properly monitored in accordance with Applicable Laws. As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenant agrees to deliver to Landlord (a) a list identifying each type of Hazardous Material to be present at the Premises that is subject to regulation under any environmental Applicable Laws (other than customary amounts of typical office cleaning supplies used and stored in compliance with all Applicable Laws), (b) a list of any and all approvals or permits from Governmental Authorities required in connection with the presence of such Hazardous Material at the Premises and (c) correct and complete copies of (i) notices of violations of Applicable Laws related to Hazardous Materials and (ii) plans relating to the installation of any storage tanks to be installed in, on,

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under or about the Project (provided that installation of storage tanks shall only be permitted after Landlord has given Tenant its written consent to do so, which consent Landlord may withhold in its sole and absolute discretion) and closure plans or any other documents required by any and all Governmental Authorities for any storage tanks installed in, on, under or about the Project for the closure of any such storage tanks (collectively, "Hazardous Materials Documents"). Tenant shall deliver to Landlord updated Hazardous Materials Documents, within fourteen (14) days after receipt of a written request therefor from Landlord, not more often than once per year, unless (m) there are any changes to the Hazardous Materials Documents or (n) Tenant initiates any Alterations or changes its business, in either case in a way that involves any material increase in the types or amounts of Hazardous Materials.For each type of Hazardous Material listed, the Hazardous Materials Documents shall include (t) the chemical name, (u) the material state (e.g., solid, liquid, gas or cryogen), (v) the concentration, (w) the storage amount and storage condition (e.g., in cabinets or not in cabinets), (x) the use amount and use condition (e.g., open use or closed use), (y) the location (e.g., room number or other identification) and (z) if known, the chemical abstract service number. Notwithstanding anything in this Section to the contrary, Tenant shall not be required to provide Landlord with any documents containing information of a proprietary nature, unlesssuchdocumentscontainareferencetoHazardous Materialsor activities related to Hazardous Materials. Landlord may, at Landlord's expense, cause the Hazardous Materials Documents to be reviewed by a person or firm qualified to analyze HazardousMaterialstoconfirmcompliancewiththeprovisionsofthisLeaseandwith Applicable Laws.In the event that a review of the Hazardous Materials Documents indicates non-compliance with this Lease or Applicable Laws, Tenant shall, at its expense, diligently take steps to bring its storage and use of Hazardous Materials into compliance.Notwithstanding anything in this Lease to the contrary or Landlord's review into Tenant's Hazardous Materials Documents or use or disposal of hazardous materials, however, Landlord shall not have and expresslydisclaimsanyliabilityrelatedtoTenant'sorothertenants'useordisposalof Hazardous Materials, it being acknowledged by Tenant that Tenant is best suited to evaluate the safety and efficacy of its Hazardous Materials usage and procedures.

21.3.Tenant  represents  and  warrants  to  Landlord that  is  not  nor  has  it  been,  in connection with the use, disposal or storage of Hazardous Materials, (a) subject to a material enforcement order issued by any Governmental Authority or (b) required to take any remedial action.

21.4.At any time, and from time to time,  prior to the expiration of the Term, Landlord shall have the right to conduct appropriate tests of the Project or any portion thereof to demonstrate that Hazardous Materials are present or that contamination has occurred due to the acts or omissions of a Tenant Party.  Tenant shall pay all reasonable costs of such tests if such tests reveal that Hazardous Materials exist at the Project in violation of this Lease.

21.5.If underground or other storage tanks storing Hazardous Materials installed or utilized by Tenant are located on the Premises, or are hereafter placed on the Premises by Tenant (or by any other party, if such storage tanks are utilized by Tenant), then Tenant shall monitor the storage tanks, maintain appropriate records, implement reporting procedures, properly close any underground storage tanks, and take or cause to be taken all other steps necessary or required under the Applicable Laws.  Tenant shall have no responsibility or liability for underground or

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other storage tanks installed by anyone other than Tenant unless Tenant utilizes such tanks, in which case Tenant's responsibility for such tanks shall be as set forth in this Section.

21.6.Tenant shall promptly report to Landlord any actual or suspected presence of mold or water intrusion at the Premises.

21.7.Tenant's obligations under this Article shall survive the expiration or earlier termination of the Lease.During any period of time needed by Tenant or Landlord after the termination of this Lease to complete the removal from the Premises of any such Hazardous Materials, Tenant shall be deemed a holdover tenant and subject to the provisions of Article 27.

21.8.As used herein, the term "Hazardous Material" means any toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous substance, material or waste that is or becomes regulated by Applicable Laws or any Governmental Authority.

21.9.Notwithstanding anything to the contrary in this Lease, Landlord shall have sole control over the equitable allocation of fire control areas (as defined in the Uniform Building Code as adopted by the city or municipality(ies) in which the Project is located (the "UBC")) within the Project for the storage of Hazardous Materials. Notwithstanding anything to the contrary in this Lease, the quantity of Hazardous Materials allowed by this Section is specific to Tenant and shall not run with the Lease in the event of a Transfer (as defined in Article 29).In the event of a Transfer, if the use ofHazardous Materials by such new tenant ("New Tenant") is such that New Tenant utilizes fire control areas in the Project in excess of New Tenant's Pro Rata Share of the Building, then New Tenant shall, at its sole cost and expense and upon Landlord's written request, establish and maintain a separate area of the Premises classified by the UBC as an "H" occupancy area for the use and storage of Hazardous Materials, or take such other action as is necessary to ensure that its share of the fire control areas of the Building is not greater than New Tenant'sPro Rata Share of the Building.Notwithstanding anything in this Lease to the contrary, Landlord shall not have and expressly disclaims any liability related to Tenant's or other tenants' use or disposal of fire control areas, it being acknowledged by Tenant that Tenant and other tenants are best suited to evaluate the safety and efficacy of its Hazardous Materials usage and procedures.

22.Odors and Exhaust.Tenant acknowledges that Landlord would not enter into this Lease withTenantunlessTenantassuredLandlordthatundernocircumstances willanyother occupants of the Building or the Project (including persons legally present in any outdoor areas of the Project) be subjected to odors or fumes (whether or not noxious), and that the Building and the Project will not be damaged by any exhaust, in each case from Tenant's operations. Landlord and Tenant therefore agree as follows:

22.1.Tenant shall not cause or permit (or conduct any activities that would cause) any release of any objectionable odors or fumes of any kind from the Premises.

22.2.If the Building has a ventilation system that, in Landlord's judgment, is adequate, suitable, and appropriate to vent the Premises in a manner that does not release odors affecting

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any indoor or outdoor part of the Project, Tenant shall vent the Premises through such system. If Landlord at any time determines that any existing ventilation system is inadequate, or if no ventilation system exists, Tenant shall in compliance with Applicable Laws vent all fumes and odors from the Premises (and remove odors from Tenant's exhaust stream) as Landlord requires. The placement and configuration of all ventilation exhaust pipes, louvers and other equipment shall be subject to Landlord's approval.  Tenant acknowledges Landlord's legitimate desire to maintain the Project (indoor and outdoor areas) in an odor-free manner, and Landlord may require Tenant to abate and remove all odors in a manner that goes beyond the requirements of Applicable Laws.

22.3.Tenant shall, at Tenant's sole cost and expense, provide odor eliminators and other devices (such as filters, air cleaners, scrubbers and whatever other equipment may in Landlord'sjudgment be necessary or appropriate from time to time) tocompletely remove, eliminate and abate any odors, fumes or other substances in Tenant'sexhaust stream that, in Landlord's judgment, emanate from Tenant's Premises.Any work Tenant performs under this Section shall constitute Alterations.

22.4.Tenant's responsibility to remove, eliminate and abate odors, fumes and exhaust shall continue throughout the Term.  Landlord's approval of the Tenant Improvements shall not preclude Landlord from requiring additional measures to eliminate odors, fumes and other adverse impacts of Tenant's  exhaust stream (as Landlord may designate in Landlord's discretion).  Tenant shall install additional equipment as Landlord requires from time to time under the preceding sentence.  Such installations shall constitute Alterations.

22.5.If Tenant fails to install satisfactory odor control equipment within twenty (20) business days after Landlord'sdemand made at any time, then Landlord may, without limiting Landlord's other rights and remedies, require Tenant to cease and suspend any operations in the Premises that, in Landlord'sdetermination, cause odors, fumes or exhaust. For example, if Landlord determines that Tenant's production of a certain type of product causes odors, fumes or exhaust, and Tenant does not install satisfactory odor control equipment within twenty (20) business days after Landlord's request, then Landlord may require Tenant to stop producing such type of product in the Premises unless and until Tenant has installed odor control equipment satisfactory to Landlord.

23.Insurance; Waiver of Subrogation.

23.1.Landlord shall maintain insurance for the Building and the Project in amounts equal to full replacement cost (exclusive of the costs of excavation, foundations and footings, engineering costs or such other costs to the extent the same are not incurred in the event of a rebuild and without reference to depreciation taken by Landlord upon its books or tax returns), provided that such coverage shall not be less than the amount of such insurance Landlord's Lender, if any, requires Landlord to maintain, providing protection against any peril generally included within the classification "Fire and Extended Coverage," together with insurance against sprinkler damage (if applicable), vandalism and malicious mischief. Landlord, subject to availability thereof, shall further insure, if Landlord deems it appropriate, coverage against flood, environmental hazard, earthquake, loss or failure of building equipment, rental loss during the

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period of repairs or rebuilding, Workers' Compensation insurance and fidelity bonds for employees employed to perform services.  Notwithstanding the foregoing, Landlord may, but shall not be deemed required to, provide insurance for any improvements installed by Tenant or that are in addition to the standard improvements customarily furnished by Landlord, without regard to whether or not such are made a part of or are affixed to the Building.

23.2.In addition, Landlord shall carry Commercial General Liability insurance with limits of not less than One Million Dollars ($1,000,000) per occurrence/general aggregate for bodily injury (including death), or property damage with respect to the Project.

23.3.Tenant shall, at its own cost and expense, procure and maintain during the Term the following insurance for the benefit of Tenant and Landlord (as their interests may appear) with insurers financially acceptable and lawfully authorized to do business in the state where the Premises are located:

(a)Commercial General Liability insurance on a broad-based occurrence coverage form,  with coverages including but not limited to  bodily injury (including death), property damage (including loss of use resulting therefrom), premises/operations, personal &  advertising injury, and contractual liability with limits of liability of not less than $2,000,000 for bodily injury and property damage per occurrence, $2,000,000 general aggregate, which limits may be met by use of excess and/or umbrella liability insurance provided that such coverage is at least as broad as the primary coverages required herein.

(b)Commercial Automobile Liability insurance covering liability arising from the use or operation of any auto, including those owned, hired or otherwise operated or used by or on behalf of the Tenant.   The coverage shall be on a broad-based occurrence form with combined single limits of not less than $1,000,000 per accident for bodily injury and property damage.

(c)Commercial Property insurance covering property damage to the full replacement cost value and business interruption.Covered property shall include all tenant improvements in the Premises (to the extent not insured by Landlord pursuant to Section 23.1) and Tenant's Property including personal property, furniture, fixtures, machinery, equipment, stock, inventory and improvements and betterments, which may be owned by Tenant or Landlord and required to be insured hereunder, or which may be leased, rented, borrowed or in the care custody or control of Tenant, or Tenant's agents, employees or subcontractors.Such insurance, with respect only to all Tenant Improvements, Alterations or other work performed on the Premises by Tenant (collectively, "Tenant Work"), shall name Landlord and Landlord's current and future mortgagees as loss payees as their interests may appear.Such insurance shall be written on an "all risk" of physical loss or damage basis including the perils of fire, extended coverage, electrical injury, mechanical breakdown, windstorm, vandalism, malicious mischief, sprinkler leakage, back-up of sewers or drains, flood, earthquake, terrorism and such other risks Landlord may from time to time designate, for the full replacement cost value of the covered items with an agreed amount endorsement with no co-insurance.Business interruption coverage shall have limits sufficient to cover Tenant's lost profits and necessary continuing expenses, including rents due Landlord under the Lease.The minimum period of indemnity for business

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interruption coverage shall be twelve (12) months plus twelve (12) months' extended period of indemnity.

(d)Workers' Compensation insurance as is required by statute or law, or as may be available on a voluntary basis and Employers' Liability insurance with limits of not less than the following:   each accident, Five Hundred Thousand Dollars ($500,000); disease ($500,000); disease (each employee), Five Hundred Thousand Dollars ($500,000).

(e)[Intentionally Omitted].

(f)Pollution Legal Liability insurance is required if Tenant stores, handles, generates or treats Hazardous Materials, as determined solely by Landlord, on or about the Premises.  Such coverage shall include bodily injury, sickness, disease, death or mental anguish or shock sustained by any person; property damage including physical injury to or destruction of tangible property including the resulting loss of use thereof, clean-up costs, and the loss of use of tangible property that has not been physically injured or destroyed; and defense costs, charges and  expenses  incurred  in  the  investigation,  adjustment  or  defense  of  claims  for  such compensatory damages.   Coverage shall apply to both sudden and non-sudden pollution conditions including the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water.  Claims-made coverage is permitted, provided the policy retroactive date is continuously maintained prior to the commencement date of this agreement, and coverage is continuously maintained during all periods in which Tenant occupies the Premises.  Coverage shall be maintained with limits of not less than $1,000,000 per incident with a $2,000,000 policy aggregate and for a period of two (2) years thereafter.

(g)During all construction by Tenant at the Premises, with respect to tenant improvements being constructed (including the Tenant Improvements and any Alterations), insurance required in Exhibit B-1 must be in place.

23.4.The insurance required of Tenant by this Article shall be with companies at all times having a current rating of not less than A- and financial category rating of at least Class VII in "A.M.Best's Insurance Guide" current edition.Tenant shall obtain for Landlord from the insurance companies/broker or cause the insurance companies/broker to furnish certificates of insurance evidencing all coverages required herein to Landlord.Landlord reserves the right to require complete, certified copies of all required insurance policies including any endorsements.No such policy shall be cancelable or subject to reduction of coverage or other modification or cancellation except after twenty (20) days' prior written notice to Landlord from Tenant or its insurers (except in the event of non-payment of premium, in which case ten (10) days' written notice shall be given).All such policies shall be written as primary policies, not contributing with and not in excess of the coverage that Landlord may carry.Tenant's required policies shall contain severability of interests clauses stating that, except with respect to limits of insurance, coverage shall apply separately to each insured or additional insured.Tenant shall, at least twenty-five (25) days prior to the expiration of such policies, furnish Landlord with renewal certificates of insurance or binders.Tenant agrees that if Tenant does not take out and maintain

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such insurance, Landlord may (but shall not be required to) procure such insurance on Tenant's behalf and at its cost to be paid by Tenant as Additional Rent.  Commercial General Liability, Commercial Automobile Liability, Umbrella Liability and Pollution Legal Liability insurance as required above shall name Landlord, BioMed Realty, L.P., and BioMed Realty Trust, Inc., and their respective officers, employees, agents, general partners, members, subsidiaries, affiliates and Lenders ("Landlord Parties") as additional insureds as respects liability arising from work or operations performed by or on behalf of Tenant, Tenant's  use or occupancy of Premises, and ownership, maintenance or use of vehicles by or on behalf of Tenant.

23.5.Ineachinstance where insurance istoname Landlord Partiesasadditional insureds, Tenant shall, upon Landlord's written request, also designate and furnish certificates evidencing such Landlord Parties as additional insureds to (a) any Lender of Landlord holding a security interest in the Building or the Project, (b) the landlord under any lease whereunder Landlord is a tenant of the real property upon which the Building is located if the interest of Landlord is or shall become that of a tenant under a ground lease rather than that of a fee owner and (c) any management company retained by Landlord to manage the Project.

23.6.Tenant assumes the risk of damage to any fixtures, goods, inventory, merchandise, equipment and leasehold improvements, and Landlord shall not be liable for injury to Tenant's business or any loss of income therefrom, relative to such damage, all as more particularly set forth within this Lease. Tenant shall, at Tenant's sole cost and expense, carry such insurance as Tenant desires for Tenant's protection with respect to personal property of Tenant or business interruption.

23.7.Landlord and Tenant and their insurers hereby waive any and all rights of recovery or subrogation against the other party and their respective officers, directors, employees, agents, general partners, members, subsidiaries, affiliates and lenders, with respect to any loss, damage, claims, suits or demands, howsoever caused, that are covered, or should have been covered, by validandcollectible insurance, including any deductibles orself-insurance maintained thereunder.If necessary, each party agrees to endorse the required insurance policies to permit waivers of subrogation as required hereunder and hold harmless and indemnify the other party and its officers, directors, employees, agents, general partners, members, subsidiaries, affiliates and lenders, for any loss or expense incurred as a result of a failure to obtain such waivers of subrogation from insurers.Such waivers shall continue so long as such party's insurer's so permit.Any termination of such a waiver shall be by written notice to the other party, containing a description of the circumstances hereinafter set forth in this Section.Landlord and Tenant, upon obtaining the policies of insurance required or permitted under this Lease, shall give notice to their respective insurance carriers that the foregoing waiver of subrogation is contained in this Lease.If such policies shall not be obtainable with such waiver or shall be so obtainable only at a premium over that chargeable without such waiver, then such party shall notify the other party of such conditions, in which event, if applicable, the notified party shall have the option to pay such premium.

23.8.Landlord may require insurance policy limits required under this Lease to be raised to conform with requirements of Landlord's Lender or to bring coverage limits to levels then being required of new tenants within the Project.

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23.9.Any costs incurred by Landlord pursuant to this Article shall constitute a portion of Operating Expenses.

23.10.The provisions of this Article shall survive the expiration or earlier termination of this Lease.

24.Damage or Destruction.

24.1.In the event of a partial destruction of (a) the Premises or (b) Common Area of the Building or the Project ((a) and (b) together, the "Affected Areas") by fire or other perils covered by extended coverage insurance not exceeding twenty-five percent (25%) of the full insurable value thereof, and provided that (x) the damage thereto is such that the Affected Areas may be repaired, reconstructed or restored within a period of six (6) months from the date of the happening of such casualty, (y) Landlord shall receive insurance proceeds sufficient to cover the cost of such repairs, reconstruction and restoration (except for any commercially reasonable deductible amount provided by Landlord's policy, which deductible amount, if paid by Landlord, shall constitute an Operating Expense) and (z) such casualty was not intentionally caused by a Tenant Party, then Landlord shall commence and proceed diligently with the work of repair, reconstruction and restoration of the Affected Areas and this Lease shall continue in full force and effect.

24.2.In the event of any damage to or destruction of the Building or the Project other than as described in Section 24.1, Landlord may elect to repair, reconstruct and restore the Building or the Project, as applicable, in which case this Lease shall continue in full force and effect.If Landlord elects not to repair, reconstruct and restore the Building or the Project, as applicable, then this Lease shall terminate as of the date of such damage or destruction.In the event of any damage or destruction (regardless of whether such damage is governed by Section24.1 or this Section), if (a) in Landlord'sdetermination as set forth in the Damage RepairEstimate (as defined below), the Affected Areas cannot be repaired, reconstructed or restored within twelve (12) months after the date of the Damage Repair Estimate, (b) subject to Section24.6, the Affected Areas are not actually repaired, reconstructed and restored within eighteen (18) months after the date of the Damage Repair Estimate, or (c) the damage and destruction occurs within the last twelve (12) months of the then-current Term, then Tenant shall have the right to terminate this Lease, effective as of the date of such damage or destruction, by delivering to Landlord its written notice of termination (a "Termination Notice") (y) with respect to Subsections 24.2(a) and (£2, no later than fifteen (15) days after Landlord delivers to Tenant Landlord's Damage Repair Estimate and (z) with respect to Subsection 24.2(b), no later than fifteen (15) days after such twelve (12) month period (as the same may be extended pursuant to Section 24.6) expires.If Tenant provides Landlord with a Termination Notice pursuant to Subsection 24.2(z), Landlord shall have an additional thirty (30) days after receipt of such Termination Notice to complete the repair, reconstruction and restoration.If Landlord does not complete such repair, reconstruction and restoration within such thirty (30) day period, then Tenant may terminate this Lease by giving Landlord written notice within ten (10) business days after the expiration of such thirty (30) day period.If Landlord does complete such repair, reconstruction and restoration within such thirty (30) day period, then this Lease shall continue in full force and effect.

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24.3.Assoonasreasonably practicable, butinanyeventwithin sixty(60)days following the date of damage or destruction, Landlord shall notify Tenant of Landlord's good faith estimate of the period of time in which the repairs, reconstruction and restoration will be completed (the "Damage Repair Estimate"), which estimate shall be based upon the opinion of a contractor reasonably selected by Landlord and experienced in comparable repair, reconstruction and restoration of similar buildings.Additionally, Landlord shall give written notice to Tenant within sixty (60) days following the date of damage or destruction of its election not to repair, reconstruct or restore the Building or the Project, as applicable.

24.4.Upon any termination of this Lease under any of the provisions of this Article, the parties shall be released thereby without further obligation to the other from the date possession of the Premises is surrendered to Landlord, except with regard to (a) items occurring prior to the damage or destruction and (b) provisions of this Lease that, by their express terms, survive the expiration or earlier termination hereof.

24.5.In the event of repair, reconstruction and restoration as provided in this Article, all Rent to be paid by Tenant under this Lease shall be abated proportionately based on the extent to which Tenant'suse of the Premises is impaired during the period of such repair, reconstruction or restoration, unless Landlord provides Tenant with other space during the period of repair, reconstruction and restoration that, in Tenant's reasonable opinion, is suitable for the temporary conduct of Tenant'sbusiness; provided, however, that the amount of such abatement shall be reduced by the amount of Rent that is received by Tenant for rental loss with respect to the Premises from the proceeds of business interruption or loss of rental income insurance.

24.6.NotwithstandinganythingtothecontrarycontainedinthisArticle,should Landlord be delayed or prevented from completing the repair, reconstruction or restoration of the damage or destruction to the Premises after the occurrence of such damage or destruction by Force Majeure or delays caused by a Tenant Party, then the time for Landlord to commence or complete repairs, reconstruction and restoration shall be extended on a day-for-day basis; provided, however, that, at Landlord's election, Landlord shall be relieved of its obligation to make such repairs, reconstruction and restoration.

24.7.If Landlord is obligated to or elects to repair, reconstruct or restore as herein provided, then Landlord shall be obligated to make such repairs, reconstruction or restoration only with regard to (a) those portions of the Premises that were originally provided at Landlord's expense and (b) the Common Area portion of the Affected Areas.The repairs, reconstruction or restoration of improvements not originally provided by Landlord or at Landlord's expense shall be the obligation of Tenant.In the event Tenant has elected to upgrade certain improvements from the Building Standard, Landlord shall, upon the need for replacement due to an insured loss, provide only the Building Standard, unless Tenant again elects to upgrade such improvements and pay any incremental costs related thereto, except to the extent that excess insurance proceeds, if received, are adequate to provide such upgrades, in addition to providing for basic repairs, reconstruction and restoration of the Premises, the Building and the Project.

24.8.Notwithstanding anything to the contrary contained in this Article, Landlord shall not have any obligation whatsoever to repair, reconstruct or restore the Premises if the damage

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resulting from any casualty covered under this Article occurs during the last twenty-four (24) months of the Term or any extension thereof ( provided that, in the event Landlord notifies Tenant that it will not repair, reconstruct or restore the Premises pursuant to this Section 24.8, and that Tenant has a remaining Option to extend this Lease pursuant to Article 41 below, then Tenant may deliver an exercise notice exercising its remaining Option within ten (10) days after receipt of Landlord's notice and provided that, after giving effect to the exercise of the Option, there will be more than twenty-four (24) months remaining in the Term after the completion of Landlord's repair, reconstruction or restoration of the Premises, Landlord will proceed to perform such repair, reconstruction or restoration of the Premises so long as insurance proceeds are available therefor).If Landlord elects not to repair, reconstruct and restore the Premises, then this Lease shall terminate as of the date of such damage or destruction.

24.9.Landlord's obligation, should it elect or be obligated to repair, reconstruct or restore, shall be limited to the Affected Areas, and shall be conditioned upon Landlord receiving any permits or authorizations required by Applicable Laws. Tenant shall, at its expense, replace or fully repair all of Tenant's personal property and any Alterations installed by Tenant existing at the time of such damage or destruction.If Affected Areas are to be repaired, reconstructed or restored in accordance with the foregoing, Landlord shall make available to Tenant any portion of insurance proceeds it receives that are allocable to the Alterations constructed by Tenant pursuant to this Lease; provided Tenant is not then in default under this Lease, and subject to the requirements of any Lender of Landlord.

24.10.This Article sets forth the terms and conditions upon which this Lease may terminate in the event of any damage or destruction.Accordingly, the parties hereby waive the provisions of California Civil Code Sections 1932(2) and 1933(4) (and any successor statutes) permitting the parties to terminate this Lease as a result of any damage or destruction.

25.Eminent Domain.

25.1.In the event (a) the whole of all Affected Areas or (b) such part thereof as shall substantially interfere with Tenant'suse and occupancy of the Premises for the Permitted Use shallbe taken for any public orquasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or sold to prevent such taking, Tenant orLandlord may terminate this Lease effective as of the date possession is required to be surrendered to such authority, except with regard to (y) items occurring prior to the taking and (z) provisions of this Lease that, by their express terms, survive the expiration or earlier termination hereof.

25.2.In the event of a partial taking of (a) the Building or the Project or (b) drives, walkways or parking areas serving the Building or the Project for any public or quasi-public purpose by any lawful power or authority by exercise of right of appropriation, condemnation, or eminent domain, or sold to prevent such taking, then, without regard to whether any portion of the Premises occupied by Tenantwas so taken, Landlord may elect to terminate this Lease (except with regard to (y) items occurring prior to the taking and (z) provisions of this Lease that, by their express terms, survive the expiration or earlier termination hereof) as of such taking if

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such taking is, in Landlord'ssole opinion, of a material nature such as to make it uneconomical to continue use of the unappropriated portion for purposes of renting office or laboratory space.

25.3.Tenant shall be entitled to any award that is specifically awarded as compensation for (a) the taking of Tenant's personal property that was installed at Tenant's expense and (b) the costs of Tenant moving to a new location.Except as set forth in the previous sentence, any award for such taking shall be the property of Landlord.

25.4.If, upon any taking of the nature described in this Article, this Lease continues in effect, then Landlord shall promptly proceed to restore the Affected Areas to substantially their same condition prior to such partial taking.To the extent such restoration is infeasible, as determined by Landlord in its sole and absolute discretion, the Rent shall be decreased proportionately to reflect the loss of any portion of the Premises no longer available to Tenant.

25.5.ThisArticlesetsforththetermsandconditionsuponwhichthisLeasemay terminatein the event of any damage or destruction.Accordingly, the parties hereby waive the provisions of California Code of Civil Procedure Section 1265.130 (and any successor statutes) permitting the parties to terminate this Lease as a result of any damage or destruction.

26.Surrender.

26.1.At least thirty (30) days prior to Tenant's surrender of possession of any part of the Premises, Tenant shall provide Landlord with a facility decommissioning and Hazardous Materials closure plan for the Premises ("Exit Survey") prepared by an independent third party state-certified professional with appropriate expertise, which Exit Survey must be reasonably acceptable to Landlord.  The Exit Survey shall comply with the American National Standards Institute's Laboratory Decommissioning guidelines (ANSI/AIHA Z9.11-2008) or any successor standards published by ANSI or any successor organization (or, if ANSI and its successors no longer exist, a similar entity publishing similar standards).  In addition, at least ten (10) days prior to Tenant's surrender of possession of any part of the Premises, Tenant shall (a) provide Landlord with written evidence of all appropriate governmental releases obtained by Tenant in accordance with Applicable Laws, including laws pertaining to the surrender of the Premises, (b) place Laboratory Equipment Decontamination Forms on all decommissioned equipment to assure safe occupancy by future users and (c) conduct a site inspection with Landlord.  In addition, Tenant agrees to remain responsible after the surrender of the Premises for the remediation of any recognized environmental conditions set forth in the Exit Survey and comply with any recommendations set forth in the Exit Survey.  Tenant's obligations under this Section shall survive the expiration or earlier termination of the Lease.

26.2.No surrender of possession of any part of the Premises shall release Tenant from any of its obligations hereunder, unless such surrender is accepted in writing by Landlord.

26.3.The voluntary or other surrender of this Lease by Tenant shall not effect a merger with Landlord'sfee title or leasehold interestin the Premises, the Building, the Property or the Project,unlessLandlordconsentsinwriting,andshall,atLandlord'soption,operateas an assignment to Landlord of any or all subleases.

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26.4.The voluntary or other surrender of any ground or other underlying lease that now exists or may hereafter be executed affecting the Building or the Project, or a mutual cancellation thereof or of Landlord'sinterest therein by Landlord and its lessor shall not effect a merger with Landlord'sfee title or leasehold interest in the Premises, the Building or the Property and shall, at the optionof the successor to Landlord'sinterest in the Building or the Project, as applicable, operate as an assignment of this Lease.

27.Holding Over.

27.1.If, with Landlord'sprior written consent, Tenant holdspossessionof all or any part of the Premises after the Term, Tenant shall become a tenant from month to month after the expirationor earlier terminationof the Term, and in such case Tenant shall continue to pay (a) Base Rent in accordancewith Article 7 and (b) any amounts for which Tenant would otherwise be liableunderthisLeaseif theLeasewerestillin effect,includingpaymentsfor Tenant's AdjustedShare of Operating Expenses. Any such month-to-month tenancy shall be subjectto every other term, covenant and agreement contained herein.

27.2.Notwithstandingthe foregoing,if Tenantremains in possessionof the Premises after the expirationor earlier terminationof the Term without Landlord'sprior written consent, (a) Tenant shall become a tenant at sufferance subject to the terms and conditions of this Lease, exceptthat the monthlyrent shall be equal to one hundred fifty percent (!50%)of the Rent in effect during the last thirty (30) days of the Term, and (b) Tenant shall be liable to Landlord for any and all damages suffered by Landlord as a result of such holdover, including any lost rent or consequential,specialand indirectdamages (in each case, regardless of whether such damages are foreseeable).

27.3.Acceptance by Landlord of Rent after the expirationor earlier terminationof theTerm shall not result in an extension, renewal or reinstatement of this Lease.

27.4.TheforegoingprovisionsofthisArticleareinadditiontoanddonotaffect Landlord's right of reentry or any other rights of Landlord hereunder or as otherwise provided by Applicable Laws.

27.5.The provisions of this Article shall survive the expiration or earlier termination of this Lease.

28.Indemnification and Exculpation.

28.1.Tenant agrees to indemnify, save, defend (at Landlord's option and with counsel reasonably acceptable to Landlord) and hold the Landlord Indemnitees harmless from and against any and all Claims of any kind or nature, real or alleged, to the extent arising from injury to or death of any person or damage to any property occurring within or about the Premises, the Building, the Property or the Project, arising directly or indirectly out of (a) the presence at or use or occupancy of the Premises or Project by a Tenant Party, (b) any negligent act or omission on the part of any Tenant Party, (c) a breach or default by Tenant in the performance of any of its obligations hereunder or (d) injury to or death of persons or damage to or loss of any property, real or alleged, arising from the serving of alcoholic beverages at the Premises or Project,

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including liability under any dram shop law, host liquor law or similar Applicable Law, except to the extent directly caused by Landlord's negligence or willful misconduct. Tenant's obligations under this Section shall not be affected, reduced or limited by any limitation on the amount or type of damages, compensation or benefits payable by or for Tenant under workers' compensation acts, disability benefit acts, employee benefit acts or similar legislation. Tenant's obligations under this Section shall survive the expiration or earlier termination of this Lease. Subject to Sections 23.6, 28.2 and 31.12, Landlord agrees to indemnify, save, defend (at Tenant's option and with counsel reasonably acceptable to Tenant) and hold the Tenant Parties harmless from and against any and all Claims arising from injury to or death of any person or damage to or loss of any physical property occurring within or about the Premises, the Building, the Property or the Project to the extent directly arising out of Landlord's gross negligence or willful misconduct.

28.2.Notwithstandinganythingin thisLeasetothecontrary,Landlordshallnotbe liable to Tenant for and Tenant assumes all risk of (a) damage or losses caused by fire, electrical malfunction,gasexplosionorwaterdamageofanytype(includingbrokenwaterlines, malfunctioningfire sprinkler systems,roof leaks or stoppagesof lines), unless any such loss is due to Landlord's willful disregard of written notice by Tenant of need for a repair that Landlord is responsible to make for an unreasonableperiod of time, and (b) damage to personal property or scientificresearch, includingloss of records kept by Tenant within the Premises (in each case, regardless of whether such damages are foreseeable).Tenant further waives any claim for injury to Tenant's business or loss of income relating to any such damage or destruction of personal property as described in this Section.Notwithstandinganything in the foregoing or this Lease to the contrary,except(x) as otherwiseprovidedherein (includingSection27.2), (y) as may be provided by Applicable Laws or (z) in the event of Tenant's breach of Article 21 or Section 26.1, in no eventshallLandlordorTenantbe liable to the other forany consequential,specialor indirect damagesarising out of this Lease, includinglost profits (provided that this Subsection28.2(z) shall not limit Tenant's liability for Base Rent or Additional Rent pursuant to this Lease).

28.3.Landlord shall not be liable for any damages arising from any act, omission or neglect of any other tenant in the Building or the Project, or of any other third party.

28.4.Tenant acknowledgesthat security devices and services, if any, while intended to deter crime, may not in given instances prevent theft or other criminal acts.Landlord shall not be liable for injuries or losses caused by criminal acts of third parties, and Tenant assumes the risk that any security device or service may malfunction or otherwise be circumvented by a criminal. If Tenant desires protection against such criminal acts, then Tenant shall, at Tenant's sole cost and expense, obtain appropriate insurance coverage.Tenant's security programs and equipment forthePremisesshallbecoordinatedwithLandlordandsubjecttoLandlord'sreasonable approval.

28.5.The provisions of this Article shall survive the expiration or earlier termination of this Lease.

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29.Assignment or Subletting.

29.1.Except as hereinafter expressly permitted, none of the following (each, a "Transfer"), either voluntarily or by operation of Applicable Laws, shall be directly or indirectly performed without Landlord's prior written consent (which shall not be unreasonably withheld): (a) Tenant selling, hypothecating, assigning, pledging, encumbering or otherwise transferring this Lease or subletting the Premises or (b) a controlling interest in Tenant being sold, assigned or otherwise transferred (other than as a result of shares in Tenant being sold on a public stock exchange). For purposes of the preceding sentence, "control" means (a) owning (directly or indirectly) more than fifty percent (50%) of the stock or other equity interests of another person or (b) possessing, directly or indirectly, the power to direct or cause the direction of the management and policies of such person. Notwithstanding the foregoing, Tenant shall have the right to Transfer, without Landlord's prior written consent, Tenant's interest in this Lease or the Premises or any part thereof to any person that as of the date of determination and at all times thereafter directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with Tenant ("Tenant's Affiliate"); provided that Tenant shall notifY Landlord in writing at least fifteen (15) business days prior to the effectiveness of such Transfer to Tenant's Affiliate (an "Exempt Transfer") and otherwise comply with the requirements of this Lease regarding such Transfer; and provided, further, that the person that will be the tenant under this Lease after the Exempt Transfer has a net worth (as of both the day immediately prior to and the day immediately after the Exempt Transfer) that is equal to or greater than the net worth (as of both the Execution Date and the date of the Exempt Transfer) of the transferring Tenant. For purposes of the immediately preceding sentence, "control" requires both (a) owning (directly or indirectly) more than fifty percent (50%) of the stock or other equity interests of another person and (b) possessing, directly or indirectly, the power to direct or cause the direction of the management and policies of such person. In no event shall Tenant perform a Transfer to or with an entity that is a tenant at the Project or that is in discussions or negotiations with Landlord or an affiliate of Landlord to lease premises at the Project or a property owned by Landlord or an affiliate of Landlord. Notwithstanding anything in this Lease to the contrary, if(a) Tenant or any proposed transferee, assignee or sublessee of Tenant has been required by any prior landlord, Lender or Governmental Authority to take material remedial action in connection with Hazardous Materials contaminating a property if the contamination resulted from such party's action or omission or use of the property in question or (b) Tenant or any proposed transferee, assignee or sublessee is subject to a material enforcement order issued by any Governmental Authority in connection with the use, disposal or storage of Hazardous Materials, then Landlord shall have the right to terminate this Lease in Landlord's sole and absolute discretion (with respect to any such matter involving Tenant), and it shall not be unreasonable for Landlord to withhold its consent to any proposed transfer, assignment or subletting (with respect to any such matter involving a proposed transferee, assignee or sublessee).

29.2.In the event Tenant desires to effect a Transfer, then, at least fifteen (15) business days prior to the date when Tenantdesires the Transferto be effective(the "TransferDate"), Tenant shall provide written notice to Landlord (the "Transfer Notice") containing information (including references) concerningthe character of the proposed transferee, assignee or sublessee; theTransferDate; themostrecentunconsolidatedfinancialstatementsof Tenantand of the proposed transferee, assignee or sublessee satisfying the requirements of Section 40.2 ("Required

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Financials"); any ownership or commercial relationship between Tenant and the proposed transferee, assignee or sublessee; and the consideration and all other material terms and conditions of the proposed Transfer, all in such detail as Landlord shall reasonably require.

29.3.Landlord, in determining whether consent should be given to a proposed Transfer, may give consideration to (a) the financial strength of Tenant and of such transferee, assignee or sublessee (notwithstanding Tenant remaining liable for Tenant's performance), (b) any change in use that such transferee, assignee or sublessee proposes to make in the use of the Premises and (c) Landlord's desire to exercise its rights under Section 29.7 to cancel this Lease.In no event shallLandlordbedeemedtobeunreasonable fordeclining toconsenttoaTransfer toa transferee, assignee or sublessee of poor reputation, lacking financial qualifications or seeking a change in the Permitted Use, or jeopardizing directly or indirectly the status of Landlord or any of Landlord's affiliates as a Real Estate Investment Trust under the Internal Revenue Code of1986 (as the same may be amended from time to time, the "Revenue Code").Notwithstandinganything contained in this Lease to the contrary, (w) no Transfer shall be consummated on any basis such that the rental or other amounts to be paid by the occupant, assignee, manager or other transferee thereunder would be based, in whole or in part, on the income or profits derived by the business activities of such occupant, assignee, manager or other transferee; (x) Tenant shall not furnish or render any services to an occupant, assignee, manager or other transferee with respect to whom transfer consideration is required to be paid, or manage or operate the Premises or any capital additions so transferred, with respect to which transfer consideration is being paid; (y) Tenant shall not consummate a Transfer with any person in which Landlord owns an interest, directly or indirectly (by applying constructive ownership rules set forth in Section 856(d)(5) of the Revenue Code); and (z) Tenant shall not consummate a Transfer with any person or in any manner that could cause any portion of the amounts received by Landlord pursuant to this Lease or any sublease, license or other arrangement for the right to use, occupy or possess any portion of the Premises to fail to qualify as "rents from real property" within the meaning of Section856(d) of the Revenue Code, or any similar or successor provision thereto or which could causeany other income of Landlord to fail to qualify as income described in Section 856(c)(2) of the

Revenue Code.

29.4.The following are conditions precedent to a Transfer or to Landlord considering a request by Tenant to a Transfer:

(a)Tenant shall remain fully liable under this Lease.Tenant agrees that it shall not be (and shall not be deemed to be) a guarantor or surety of this Lease, however, and waives its right to claim that is it is a guarantor or surety or to raise in any legal proceeding any guarantor or surety defenses permitted by this Lease or by Applicable Laws;

(b)If Tenant or the proposed transferee, assignee or sublessee does not or carmot deliver the Required Financials, then Landlord may elect to have either Tenant's ultimate parent company or the proposed transferee's, assignee's or sublessee's ultimate parent company provide a guaranty of the applicable entity's obligations under this Lease, in a form acceptable to Landlord,whichguarantyshallbeexecutedanddeliveredtoLandlordbytheapplicable guarantor prior to the Transfer Date;

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(c)In the case of an Exempt Transfer, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord that the Transfer qualifies as an Exempt Transfer;

(d)Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord that the value of Landlord's interest under this Lease shall not be diminished or reduced by the proposed Transfer. Such evidence shall include evidence respecting the relevant business experience and financial responsibility and status of the proposed transferee, assignee or sublessee;

(e)Tenant shall reimburse Landlord for Landlord's actual costs and expenses, including reasonable attorneys' fees, charges and disbursements incurred in connection with the review, processing and documentation of such request, which fees shall not exceed Two Thousand Five Hundred Dollars ($2,500), unless Tenant requests any modification to this Lease, in which case the foregoing cap will not apply;

(f)Except with respect to an Exempt Transfer, if Tenant's transfer of rights or sharing of the Premises provides for the receipt by, on behalf of or on account of Tenant of any consideration of any kind whatsoever (including a premium rental for a sublease or lump sum payment for an assignment, but excluding Tenant's reasonable costs in marketing and subleasing the Premises) in excess of the rental and other charges due to Landlord under this Lease, Tenant shall pay fifty percent (50%) of all of such excess to Landlord, after making deductions for any reasonable marketing expenses, tenant improvement funds expended by Tenant, alterations, cash concessions, brokerage commissions, attorneys' fees and free rent actually paid by Tenant.   If such consideration consists of cash paid to Tenant, payment to Landlord shall be made upon receipt by Tenant of such cash payment;

(g)The proposed transferee, assignee or sublessee shall agree that, in the event Landlord gives such proposed transferee, assignee or sublessee notice that Tenant is in default under this Lease, such proposed transferee, assignee or sublessee shall thereafter make all payments otherwise due Tenant directly to Landlord, which payments shall be received by Landlord without any liability being incurred by Landlord, except to credit such payment against those due by Tenant under this Lease, and any such proposed transferee, assignee or sublessee shall agree to attorn to Landlord or its successors and assigns should this Lease be terminated for any reason; provided, however, that in no event shall Landlord or its Lenders, successors or assigns be obligated to accept such attornment;forms;

(h)Landlord's consent to any such Transfer shall be effected on Landlord's

(i)Tenant shall not then be in Default hereunder in any respect;

(j)Such proposed transferee, assignee or sublessee's use of the Premises shall be the same as the Permitted Use;

(k)Landlord shall not be bound by any provision of any agreement pertaining to the Transfer, except for Landlord's written consent to the same;

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(I)Tenant  shall  pay  all  transfer  and  other  taxes  (including  interest  and penalties) assessed or payable for any Transfer;

(m)Landlord's consent (or waiver of its  rights) for any Transfer shall not waive Landlord's right to consent or refuse consent to any later Transfer;

(n)Tenant shall deliver to Landlord one executed copy of any and all written instruments evidencing or relating to the Transfer; and

(o)Tenant shall deliver to Landlord a list of Hazardous Materials (as defined below), certified by the proposed transferee, assignee or sublessee to be true and correct, that the proposed transferee, assignee or sublessee intends to use or store in the Premises.  Additionally, Tenant shall deliver to Landlord, on or before the date any proposed transferee, assignee or sublessee takes occupancy of the Premises, all of the items relating to Hazardous Materials of such proposed transferee, assignee or sublessee as described in Section 21.2.

29.5.Any Transfer that is not in compliance with the provisions of this Article or with respect to which Tenant does not fulfill its obligations pursuant to this Article shall be void and shall, at the option of Landlord, terminate this Lease.

29.6.Notwithstanding any Transfer, Tenant shall remain fully and primarily liable for the payment of all Rent and other sums due or to become due hereunder, and for the full performance of all other terms, conditions and covenants to be kept and performed by Tenant. The acceptance of Rent or any other sum due hereunder, or the acceptance of performance of any other term, covenant or condition thereof, from any person or entity other than Tenant shall not be deemed a waiver of any of the provisions of this Lease or a consent to any Transfer.

29.7.If Tenant delivers to Landlord a Transfer Notice indicating a desire to transfer this Lease to a proposed transferee, assignee or sublessee other than pursuant to an Exempt Transfer, then Landlord shall have the option, exercisable by giving notice to Tenant at any time within ten (10) days after Landlord's receipt of such Transfer Notice, to terminate this Lease as of the date specified in the Transfer Notice as the Transfer Date, except for those provisions that, by their express terms, survive the expiration or earlier termination hereof.  If Landlord exercises such option, then Tenant shall have the right to withdraw such Transfer Notice by delivering to Landlord written notice of such election within five (5) days after Landlord's delive1y of notice electing to exercise Landlord's option to terminate this Lease. In the event Tenant withdraws the Transfer Notice as provided in this Section, this Lease shall continue in full force and effect. No failure of Landlord to exercise its option to terminate this Lease shall be deemed to be Landlord's consent to a proposed Transfer.

29.8.If Tenant sublets the Premises or any portion thereof, Tenant hereby immediately and irrevocably assigns to Landlord, as security for Tenant's obligations under this Lease, all rent from any such subletting, and appoints Landlord as assignee and attorney-in-fact for Tenant, and Landlord (or a receiver for Tenant appointed on Landlord's  application) may collect such rent and apply it toward Tenant's obligations under this Lease; provided that, until the occurrence of a Default (as defined below) by Tenant, Tenant shall have the right to collect such rent.

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29.9.IntheeventthatTenantentersintoasublease fortheentirePremisesin accordance with this Article that expires within two (2) days of the Term Expiration Date, the term expiration date of such sublease shall, notwithstanding anything in this Lease, the sublease or any consent to the sublease to the contrary, be deemed to be the date that is two (2) days prior to the Term Expiration Date.

30.Subordination and Attornment.

30.1.This Lease shall be subject and subordinate to the lien of any mortgage, deed of trust, or lease in which Landlord is tenant now or hereafter in force against the Building or the Project and to all advances made or hereafter to be made upon the security thereof without the necessity of the executionand delivery of any further instruments on the part of Tenant to effectuate such subordination; provided that such lienholder agrees not to disturb Tenant's occupancy of the Premises under this Lease so long as Tenant is not in default hereunder. As of the Execution Date, there are no deeds of trust encumbering the Project.

30.2.Notwithstanding the foregoing, Tenant shall execute and deliver upon demand such further commercially reasonable instrument or instruments evidencing such subordination and non-disturbance of this Lease to the lien of any such mortgage or mortgages or deeds of trust or lease in which Landlord is tenant as may be required by Landlord.If any such mortgagee, beneficiary or landlord under a lease wherein Landlord is tenant (each, a "Mortgagee") so elects, however, this Lease shall be deemed prior in lien to any such lease, mortgage, or deed of trust upon or including the Premises regardless of date and Tenant shall execute a statement in writing to such effect at Landlord's request. For the avoidance of doubt, "Mortgagees" shall also include historic tax credit investors and new market tax credit investors.

30.3.Upon written request of Landlord and opportunity for Tenant to review, Tenant agrees to execute any Lease amendments not materially altering the terms of this Lease, if required by a Mortgagee incident to the financing of the real property of which the Premises constitute a part.

30.4.In the event any proceedings are brought for foreclosure, or in the event of the exercise of the power of sale under any mortgage or deed of trust made by Landlord covering the Premises, Tenant shall at the election of the purchaser at such foreclosure or sale attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as Landlord under this Lease.

31.Defaults and Remedies.

31.1.Late payment by Tenant to Landlord of Rent and other sums due shall cause Landlord to incur costs not contemplated by this Lease, the exact amount of which shall be extremely difficult and impracticable to ascertain.Such costs include processing and accounting charges and late charges that may be imposed on Landlord by the terms of any mortgage or trust deed covering the Premises.Therefore, if any installment of Rent due from Tenant is not received by Landlord within five (5) days after the date such payment is due, Tenant shall pay to Landlord (a) an additional sum of three percent (3%) of the overdue Rent as a late charge plus (b) interest at an annual rate (the "Default Rate") equal to the lesser of (a) twelve percent (12%) and

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(b) the highest rate permitted by Applicable Laws.  The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord shall incur by reason of late payment by Tenant and shall be payable as Additional Rent to Landlord due with the next installment of  Rent or within five (5)  business days after Landlord's  demand, whichever is earlier.   Landlord's  acceptance of any Additional Rent (including a late charge or any other amount hereunder) shall not be deemed an extension of the date that Rent is due or prevent Landlord from pursuing any other rights or remedies under this Lease, at law or in equity. Notwithstanding the foregoing, Tenant shall not be obligated to pay a late charge pursuant to this Section for the first (I'') late payment of Rent during any twelve (12) month period during the Term, unless Tenant fails to make such payment within five (5) days after Tenant's receipt of notice from Landlord regarding such late payment.

31.2.No payment by Tenant or receipt by Landlord of a lesser amount than the Rent payment herein stipulated shall be deemed to be other than on account of the Rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's  right to recover the balance of such Rent or pursue any other remedy provided in this Lease or in equity or at law.  If a dispute shall arise as to any amount or sum of money to be paid by Tenant to Landlord hereunder, Tenant shall have the right to make payment "under protest," such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of Tenant to institute suit for recovery of the payment paid under protest.

31.3.If Tenant fails to pay any sum of money required to be paid by it hereunder or perform any other act on its part to be performed hereunder, in each case within the applicable cure period (if any) described in Section 31.4, then Landlord may (but shall not be obligated to), without waiving or releasing Tenant from  any obligations of Tenant, make such payment or perform such act; provided that such failure by Tenant unreasonably interfered with the use of the Building or the Project by any other tenant or with the efficient operation of the Building or the Project, or resulted or could have resulted in a violation of Applicable Laws or the cancellation of an insurance policy maintained by Landlord.  Notwithstanding the foregoing, in the event of an emergency, Landlord shall have the right to enter the Premises and act in accordance with its rights as provided elsewhere in this Lease.  In addition to the late charge described in Section31.1, Tenant shall pay to Landlord as Additional Rent all sums so paid or incurred by Landlord, together with interest at the Default Rate, computed from the date such sums were paid or incurred.

31.4.The occurrence of any one or more of the following events shall constitute a"Default" hereunder by Tenant:

(a)Tenant abandons (as defined in California Civil Code Section 1951.3) or vacates the Premises;

(b)Tenant fails to make any payment of Rent, as and when due, or to satisfY its obligations under Article 19, where such failure shall continue for a period of three (3) days after written notice thereof from Landlord to Tenant;

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(c)Tenant fails to observe or perform any obligation or covenant contained herein (other than described in Sections 31.4(a) and 31.4(b)) to be performed by Tenant, where such failure continues for a period of ten (I0) days after written notice thereof from Landlord to Tenant; provided that, if the nature of Tenant's default is such that it reasonably requires more than ten (I0) days to cure, Tenant shall not be deemed to be in Default if Tenant commences such cure within such ten (10) day period and thereafter diligently prosecutes the same to completion; and provided, further, that such cure is completed no later than sixty (60) days after Tenant's receipt of written notice from Landlord;

(d)Tenant makes an assignment for the benefit of creditors;

(e)Areceiver, trusteeorcustodian isappointed toordoestaketitle, possession or control of all or substantially all of Tenant'sassets;

(f)Tenant files a voluntary petition under the United States Bankruptcy Code oranysuccessorstatute(asthesamemaybe amendedfromtimetotime,the "Bankruptcy Code") or an order for relief is entered against Tenant pursuant to a voluntary or involuntary proceeding commenced under any chapter of the Bankruptcy Code;

(g)Any involuntary petition is filed against Tenant under any chapter of theBankruptcy Code and is not dismissed within one hundred twenty (120) days;20; or

(h)Tenant fails to deliver an estoppel certificate in accordancewith Article

(i)Tenant's interestin thisLeaseis attached,executeduponorotherwise judiciallyseizedand such actionis not releasedwithinone hundredtwenty (120)days of the action.

Notices given under this Section shall specify the alleged default and shall demand that Tenant perform the provisions of this Lease or pay the Rent that is in arrears, as the case may be, within the applicable period of time, or quit the Premises. No such notice shall be deemed a forfeiture or a termination of this Lease unless Landlord elects otherwise in such notice.

31.5.In the event of a Defaultby Tenant, and at any time thereafter, with or without noticeordemandandwithoutlimitingLandlordin theexerciseof any rightorremedy that Landlord may have, Landlord has the right to do any or all of the following:

(a)Haltany TenantImprovementsandAlterationsandorderTenant's contractors, subcontractors, consultants, designers and material suppliers to stop work;

(b)Terminate Tenant's right to possession of the Premises by written notice to Tenant or by any lawful means, in which case Tenant shall immediately surrender possession of the Premises to Landlord.In such event, Landlord shall have the immediate right to re-enter and removeallpersonsandproperty,andsuchpropertymaybe removedandstoredin apublic warehouse or elsewhere at the cost and for the account of Tenant, all without service of notice or

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resort to legal process and without being deemed guilty of trespass or becoming liable for any loss or damage that may be occasioned thereby; and

(c)Terminate this Lease, in which event Tenant shall immediately surrender possession of the Premises to Landlord.  In such event, Landlord shall have the immediate right to re-enter and remove all persons and property, and such property may be removed and stored in a public warehouse or elsewhere at the cost and for the account of Tenant, all without service of notice or resort to legal process and without being deemed guilty of trespass or becoming liable for any loss or damage that may be occasioned thereby.  In the event that Landlord shall elect to so terminate this Lease, then Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant's default, including

(i)The sum of:

A.The worth at the time of award of any unpaid Rent that had accrued at the time of such termination; plus

B.The worth at the time of award of the amount by which the unpaid Rent that would have accrued during the period commencing with termination of the Lease and ending at the time of award exceeds that portion of the loss of Landlord's rental income from the Premises that Tenant proves to Landlord's reasonable satisfaction could have been reasonably avoided; plus

C.The worth at the time of award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds that portion of the loss of Landlord's rental income from the Premises that Tenant proves to Landlord's reasonable satisfaction could have been reasonably avoided; plus

D.Any other amount necessary to compensate Landlord for all the detriment caused by Tenant's failure to perform its obligations under this Lease or that in the ordinary course of things would be likely to result therefrom, including the cost of restoring the Premises to the condition required under the terms of this Lease, including any rent payments not otherwise chargeable to Tenant (e.g., during any "free" rent period or rent holiday); plus

E.At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by Applicable Laws; or

(ii)At Landlord's election, asminimumliquidateddamagesin addition to any (A) amounts paid or payable to Landlord pursuant to Section 31.5(c)(i)(A) prior to such election and (B) costs of restoring the Premises to the condition required under the terms of this Lease, an amount (the "Election Amount") equal to either (Y) the positive difference (if any, and measured at the time of such termination) between (I) the then-present value of the total Rent and other benefits that would have accrued to Landlord under this Lease for the remainder of the Term if Tenant had fully complied with the Lease minus (2) the then-present cash rental value of the Premises as determined by Landlord for what would be the then-unexpired Term if the Lease remained in effect, computed using the discount rate of the Federal Reserve Bank of

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San Francisco at the time of the award plus one (I) percentage point (the "Discount Rate") or (Z) twelve (12) months (or such lesser number of months as may then be remaining in the Term) of Base Rent and Additional Rent at the rate last payable by Tenant pursuant to this Lease, in either case as Landlord specifies in such election. Landlord and Tenant agree that the Election Amount represents a reasonable forecast of the minimum damages expected to occur in the event of a breach, taking into account the uncertainty, time and cost of determining elements relevant to actual damages, such as fair market rent, time and costs that may be required to re-lease the Premises, and other factors; and that the Election Amount is not a penalty.

As used in Sections 31.5(c)(i)(A) and .(ID, "worth at the time of award" shall be computed by allowing interest at the Default Rate.As used in Section 31.5(c)(i)(C), the "worth at the time of the award" shall be computed by taking the present value of such amount, using the Discount Rate.

31.6.In addition to any other remedies available to Landlord at law or in equity and under this Lease, Landlord shall have the remedy described in California Civil Code Section1951.4 and may continue this Lease in effect after Tenant's Default or abandonment and recover Rent as it becomes due, provided Tenant has the right to sublet or assign, subject only to reasonable limitations.In addition, Landlord shall not be liable in any way whatsoever for its failure or refusal to relet the Premises.For purposes of this Section, the following acts by Landlord will not constitute the termination of Tenant's right to possession of the Premises:

(a)Actsofmaintenanceorpreservation oreffortstorelet thePremises, including alterations, remodeling, redecorating, repairs, replacements or painting as Landlord shall consider advisable for the purpose of reletting the Premises or any part thereof; or

(b)The appointment of a receiver upon the initiative of Landlord to protectLandlord's interest under this Lease or in the Premises.

Notwithstanding the foregoing, in the event of a Default by Tenant, Landlord may elect at any time to terminate this Lease and to recover damages to which Landlord is entitled.

31.7.If Landlord does not elect to terminate this Lease as provided in Section 31.5, then Landlord may, from time to time, recover all Rent as it becomes due under this Lease.At any time thereafter, Landlord may elect to terminate this Lease and to recover damages to which Landlord is entitled.

31.8.In theeventLandlordelectstoterminate thisLease and relet thePremises, Landlord may execute any new lease in its own name.Tenant hereunder shall have no right or authority whatsoever to collect any Rent from such tenant.The proceeds of any such reletting shall be applied as follows:

(a)First, to the payment of any indebtedness other than Rent due hereunder from Tenant toLandlord, including storagecharges orbrokerage commissions owing from Tenant to Landlord as the result of such reletting;

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(b)Second, to the payment of the costs and expenses of reletting the Premises, including (i) alterations and repairs that Landlord deems reasonably necessary and advisable and (ii) reasonable attorneys' fees, charges and disbursements incurred by Landlord in connection with the retaking of the Premises and such reletting;and

(c)Third, to the payment of Rent and other charges due and unpaid hereunder;

(d)Fourth, tothepayment of future Rentand other damages payable byTenant under this Lease.31.9.All of Landlord's rights, options and remedies hereunder shall be construed and held to be nonexclusive and cumulative. Landlord shall have the right to pursue any one or all of such remedies, or any other remedy or relief that may be provided by Applicable Laws, whether or not stated in this Lease.No waiver of any default of Tenant hereunder shall be implied from any acceptance by Landlord of any Rent or other payments due hereunder or any omission by Landlord to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect defaults other than as specified in such waiver.Notwithstanding any provision of this Lease to the contrary, in no event shall Landlord be required to mitigate its damages with respect to any default by Tenant, except as required by Applicable Laws.Any such obligation imposed by Applicable Laws upon Landlord to relet the Premises after any termination of this Lease shall be subject to the reasonable requirements of Landlord to (a) lease to high quality tenants on such terms as Landlord may from time to time deem appropriate in its discretion and (b) develop the Project in a harmonious manner with a mix of uses, tenants, floor areas, terms of tenancies, etc., as determined by Landlord.Landlord shall not be obligated to relet the Premises to (y) any Tenant's Affiliate or (z) any party (i) unacceptable to a Lender, (ii) that requires Landlord to make improvements to or re-demise the Premises, (iii) that desires to change the Permitted Use, (iv) that desires to lease the Premises for more or less than the remaining Term or (v) to whom Landlord or an affiliate of Landlord may desire to lease other available spacein the Project oratanother property owned by Landlord oranaffiliate of Landlord.

31.10.Landlord's termination of(a) this Lease or (b) Tenant's right to possession of the Premises shall not relieve Tenant of any liability to Landlord that has previously accrued or that shall arise based upon events that occurred prior to the later to occur of (y) the date of Lease termination and (z) the date Tenant surrenders possession of the Premises.

31.11.To the extent permitted by Applicable Laws, Tenant waives any and all rights of redemption granted by or under any present or future Applicable Laws if Tenant is evicted or dispossessed for any cause, or if Landlord obtains possession of the Premises due to Tenant's default hereunder or otherwise.

31.12.Landlord shall not be in default or liable for damages under this Lease unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event shall such failure continue for more than thirty (30) days after written notice from Tenant specifying the nature of Landlord's failure; provided, however, that if the nature of Landlord's

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obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion.  In no event shall Tenant have the right to terminate or cancel this Lease or to withhold or abate rent or to set off any Claims against Rent as a result of any default or breach by Landlord of any of its covenants, obligations, representations, warranties or promises hereunder, except as may otherwise be expressly set forth in this Lease.

31.13.In the event of any default by Landlord, Tenant shall give notice by registered or certified mail to any (a) beneficiary of a deed of trust or (b) mortgagee under a mortgage covering the Premises, the Building or the Project and to any landlord of any lease of land upon or within which the Premises, the Building or the Project is located, and shall offer such beneficiary, mortgagee or landlord a reasonable opportunity to cure the default, including time to obtain possession of the Building or the Project by power of sale or a judicial action if such should prove necessary to effect a cure; provided that Landlord shall furnish to Tenant in writing, upon written request by Tenant, the names and addresses of all such persons who are to receive such notices.

32.Bankruptcy.  In the event a debtor, trustee or debtor in possession under the Bankruptcy Code, or another person with similar rights, duties and powers under any other Applicable Laws, proposes to cure any default under this Lease or to assume or assign this Lease and is obliged to provide adequate assurance to Landlord that (a) a default shall be cured, (b) Landlord shall be compensated for its damages arising from any breach of this Lease and (c) future performance of Tenant's  obligations under this Lease shall occur, then such adequate assurances shall include any or all of the following, as designated by Landlord in its sole and absolute discretion:

32.1.Those acts specified in the Bankruptcy Code or other Applicable Laws as included within the meaning of "adequate assurance," even if this Lease does not concern a shopping center or other facility described in such Applicable Laws;

32.2.A prompt cash payment to compensate Landlord for any monetary defaults or actual damages arising directly from a breach of this Lease;

32.3.A cash deposit in an amount at least equal to the then-current amount of the

Security Deposit; or

32.4.The assumption or assignment of all of Tenant's interest and obligations under this Lease.

33.Brokers.

33.1.Tenant represents and warrants that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease other than Jones Lang LaSalle ("Broker"), and that it knows of no other real estate broker or agent that is or might be entitled to a commission in connection with this Lease.  Landlord shall compensate Broker in relation to this Lease pursuant to a separate agreement between Landlord and Broker.

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33.2.Tenantrepresentsandwarrantsthatnobrokeroragenthasmadeany representation or warranty relied upon by Tenant in Tenant's decision to enter into this Lease, other than as contained in this Lease.

33.3.Tenantacknowledges and agrees that the employmentof brokers by Landlord is for the purpose of solicitation of offers of leases from prospective tenants and that no authority is granted to any broker to furnish any representation(written or oral) or warranty from Landlord unless expressly contained within this Lease.Landlord is executing this Lease in reliance upon Tenant's representations, warranties and agreements contained within Sections 33.1 and 33.2.

33.4.Tenant agrees to indemnifY, save, defend (at Landlord'soption and with counsel reasonably acceptable to Landlord) and hold the Landlord Indemnitees harmless from any and all cost or liability for compensation claimed by any broker or agent, other than Broker, employed or engaged by Tenant or claiming to have been employed or engaged by Tenant.

34.Definition of Landlord. With regard to obligations imposed upon Landlord pursuant to this Lease, the term "Landlord," as used in this Lease, shall refer only to Landlord or Landlord's then-current successor-in-interest. In the event of any transfer, assignment or conveyance of Landlord's interest in this Lease or in Landlord's fee title to or leasehold interest in the Property, as applicable, Landlord herein named (and in case of any subsequent transfers or conveyances, the subsequent Landlord) shall be automatically freed and relieved, from and after the date of such transfer, assignment or conveyance, from all liability for the performance of any covenants or obligations contained in this Lease thereafter to be performed by Landlord and, without further agreement, the transferee, assignee or conveyee of Landlord's in this Lease or in Landlord's fee title to or leasehold interest in the Property, as applicable, shall be deemed to have assumed and agreed to observe and perform any and all covenants and obligations of Landlord hereunder during the tenure of its interest in the Lease or the Property. Landlord or any subsequent Landlord may transfer its interest in the Premises or this Lease without Tenant's consent.

35.Limitation of Landlord's Liability.

35.1.If Landlord is in default under this Lease and, as a consequence, Tenant recovers a monetary judgment against Landlord, the judgment shall be satisfied only out of (a) the proceeds of sale received on execution of the judgment and levy against the right, title and interest of Landlord in the Building and the Project, (b) rent or other income from such real property receivable by Landlord or (c) the consideration received by Landlord from the sale, financing, refinancing or other disposition of all or any part of Landlord's right, title or interest in the Building or the Project.

35.2.Neither Landlord nor any of its affiliates, nor any of their respective partners, shareholders, directors, officers, employees, members or agents shall be personally liable for Landlord's obligations or any deficiency under this Lease, and service of process shall not be made against any shareholder, director, officer, employee or agent of Landlord or any of Landlord's affiliates. No partner, shareholder, director, officer, employee, member or agent of Landlord or any of its affiliates shall be sued or named as a party in any suit or action, and service of process shall not be made against any partner or member of Landlord except as may be necessary to secure jurisdiction of the partnership, joint venture or limited liability company, as

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applicable.No partner, shareholder, director, officer, employee, member or agent of Landlord or any of its affiliates shall be required to answer or otherwise plead to any service of process, and no judgment shall be taken or writ of execution levied against any partner, shareholder, director, officer, employee, member or agent of Landlord or any of its affiliates.

35.3.Each of the covenants and agreements of this Article shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by Applicable Laws and shall survive the expiration or earlier termination of this Lease.

36.Joint and Several Obligations.If more than one person or entity executes this Lease asTenant, then:

36.1.Each of them is jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed or performed by Tenant, and such terms, covenants, conditions, provisions and agreements shall be binding with the same force and effect upon each and all of the persons executing this Agreement as Tenant; and

36.2.The term "Tenant," as used in this Lease, shall mean and include each of them, jointly and severally.The act of, notice from, notice to, refund to, or signature of any one or more of them with respect to the tenancy under this Lease, including any renewal, extension, expiration, termination or modification of this Lease, shall be binding upon each and all of the persons executing this Lease as Tenant with the same force and effect as if each and all of them had so acted, so given or received such notice or refund, or so signed.

37.Representations. Tenant guarantees, warrants and represents that (a) Tenant is duly incorporated or otherwise established or formed and validly existing under the laws of its state of incorporation, establishment or formation, (b) Tenant has and is duly qualified to do business in the state in which the Property is located, (c) Tenant has full corporate, partnership, trust, association or other appropriate power and authority to enter into this Lease and to perform all Tenant's obligations hereunder, (d) each person (and all of the persons if more than one signs) signing this Lease on behalf of Tenant is duly and validly authorized to do so and (e) neither (i) the execution, delivery or performance of this Lease nor (ii) the consummation of the transactions contemplated hereby will violate or conflict with any provision of documents or instruments under which Tenant is constituted or to which Tenant is a party. In addition, Tenant guarantees, warrants and represents that none of (x) it, (y) its affiliates or partners nor (z) to the best of its knowledge, its members, shareholders or other equity owners or any of their respective employees, officers, directors, representatives or agents is a person or entity with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control ("OFAC") of the Department of the Treasury (including those named on OFAC's Specially Designated and Blocked Persons List) or under any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism) or other similar governmental action.

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38.Confidentiality.Tenant shall keep the terms and conditions of this Lease and any information provided to Tenant or its employees, agents or contractors pursuant to Article 9 confidential and shall not (a) disclose to any third party any terms or conditions of this Lease or any other Lease-related document (including subleases, assignments, work letters, construction contracts, letters of credit, subordination agreements, non-disturbance agreements, brokerage agreements or estoppels) or (b) provide to any third party an original or copy of this Lease (or any Lease-related document).Landlord shall not release to any third party any non-public financial information or non-public information about Tenant's ownership structure that Tenant gives Landlord.Notwithstanding the foregoing, confidential information under this Section may be released by Landlord or Tenant under the following circumstances:(x) if required by Applicable Laws or in any judicial proceeding; provided that the releasing party has given the other party reasonable notice of such requirement, if feasible, (y) to a party's attorneys, accountants, brokers and other bona fide consultants or advisers (with respect to this Lease only); provided such third parties agree to be bound by this Section or (z) to bona fide prospective assignees or subtenants of this Lease; provided they agree in writing to be bound by this Section.

39.Notices.Except as otherwise stated in this Lease, any notice, consent, demand, invoice, statement or other communication required or permitted to be given hereunder shall be in writing and shall be given by (a) personal delivery, (b) overnight delivery with a reputable international overnight delivery service, such as FedEx, or (c) facsimile or email transmission, so long as such transmission is followed within one (1) business day by delivery utilizing one of the methods described in Subsection 39(a) or {hl.Any such notice, consent, demand, invoice, statement or other communication shall be deemed delivered (x) upon receipt, if given in accordance with Subsection 39(a); (y) one (I) business day after deposit with a reputable international overnight delivery service, if given if given in accordance with Subsection 39(b); or (z) upon transmission, if given in accordance with Subsection 39(c).Except as otherwise stated in this Lease, any notice, consent, demand, invoice, statement or other communication required or permitted to be given pursuant to this Lease shall be addressed to Landlord or Tenant at the addresses shown in Sections 2.9 and 2.10 or2.11, respectively.Either party may, by notice to the other given pursuant to this Section, specify additional or different addresses for notice purposes.

40.Miscellaneous.

40.1.Landlord reserves the right to change the name of the Building or the Project in its sole discretion.

40.2.To induce Landlord to enter into this Lease, Tenant agrees that it shall furnish to Landlord, from time to time, within ten (10) business days after receipt of Landlord's written request (not more often than once per year), the most recent year-end unconsolidated financial statements reflecting Tenant's current financial condition audited by a nationally recognized accounting firm.Tenant represents and warrants that all financial statements, records and information furnished by Tenant to Landlord in connection with this Lease are true, correct and complete in all respects.If audited financials are not otherwise prepared, unaudited financials complying with generally accepted accounting principles and certified by the chief financial officer of Tenant as true, correct and complete in all respects shall suffice for purposes of this Section.If Tenant fails to deliver to Landlord any financial statement within the time period

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required under this Section, then Tenant shall be required to pay to Landlord an administrative fee equal to One Thousand Dollars ($1,000) within five (5) business days after receiving written notice from Landlord advising Tenant of such failure (provided, however, that Landlord's acceptance of such fee shall not prevent Landlord from pursuing any other rights or remedies under this Lease, at law or in equity). The provisions of this Section shall not apply at any time while Tenant is a corporation whose shares are traded on any nationally recognized stock exchange.

40.3.Submission of this instrumentfor examinationor signatureby Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease or otherwise until execution by and delivery to both Landlord and Tenant.

40.4.ThetermsofthisLeaseareintendedby thepartiesasa final,completeand exclusiveexpressionof their agreement with respect to the terms that are included herein, and may not be contradicted or supplemented by evidence of any other prior or contemporaneous agreement.

40.5.Landlord may, but shall not be obligated to, record a short form or memorandum hereof without Tenant's consent.Withinten (10)days afterreceiptofwrittenrequest from Landlord,Tenantshallexecuteaterminationofanyshortformormemorandumoflease recorded with respect hereto.Tenant shall be responsible for the cost of recording any short form or memorandum of this Lease, including any transfer or other taxes incurred in connection with such recordation.Neither party shall record this Lease.

40.6.Where applicable in this Lease, the singular includes the plural and the masculine or neuter includes the masculine, feminine and neuter. The words "include," "includes," "included" and "including" mean "'include,' etc., without limitation." The word "shall" is mandatory and the word "may" is permissive. The section headings of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part of this Lease. Landlord and Tenant have each participated in the drafting and negotiation of this Lease, and the language in all parts of this Lease shall be in all cases construed as a whole according to its fair meaning and not strictly for or against either Landlord or Tenant.

40.7.Except as otherwise expressly set forth in this Lease, each party shall pay its own costs and expensesincurredin connectionwith this Lease and such party'sperformance under thisLease;providedthat,ifeitherpartycommencesanaction,proceeding,demand,claim, action, cause of actionor suit against the otherparty arising out of or in connectionwith this Lease,thenthesubstantiallyprevailingpartyshallbereimbursedby theotherparty forall reasonable costs and expenses, including reasonable attorneys' fees and expenses, incurred by the substantially prevailing party in such action, proceeding, demand, claim, action, cause of action or suit, and in any appeal in connectiontherewith(regardless of whetherthe applicable action, proceeding, demand, claim, action, cause of action, suit or appeal is voluntarily withdrawn or dismissed).

40.8.Time is of the essence with respect to the performance of every provision of thisLease.

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40.9.Each provision of this Lease performable by Tenant shall be deemed both a covenant and a condition.

40.10.Notwithstanding anything to the contrary contained in this Lease, Tenant's obligations under this Lease are independent and shall not be conditioned upon performance by Landlord.

40.11.Whenever consent or approval of either party is required, that party shall not unreasonably withhold, condition or delay such consent or approval, except as may be expressly set forth to the contrary.

40.12.Any provision of this Lease that shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provision hereof, and all other provisions of this Lease shall remain in full force and effect and shall be interpreted as if the invalid, void or illegal provision did not exist.

40.13.Each of the covenants, conditions and agreements herein contained shall inure to the benefit of and shall apply to and be binding upon the parties hereto and their respective heirs; legatees; devisees; executors; administrators; and permitted successors and assigns.This Lease is for the sole benefit of the parties and their respective heirs, legatees, devisees, executors, administrators and permitted successors and assigns, and nothing in this Lease shall give or be construed to give any other person or entity any legal or equitable rights. Nothing in this Section shall in any way alter the provisions of this Lease restricting assignment or subletting.

40.14.This Lease shall be governed by, construed and enforced in accordance with the laws of the state in which the Premises are located, without regard to such state's conflict oflaw principles.

40.15.Tenant guarantees, warrants and represents that the individual or individuals signing this Lease have the power, authority and legal capacity to sign this Lease on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf such individual or individuals have signed.

40.16.This Lease may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document.

40.17.No provision of this Lease may be modified, amended or supplemented except by an agreement in writing signed by Landlord and Tenant.

40.18.No waiver of any term, covenant or condition of this Lease shall be binding upon either party unless executed in writing by the waiving party. The waiver by Landlord or Tenant of any breach or default of any term, covenant or condition contained in this Lease shall not be deemed to be a waiver of any preceding or subsequent breach or default of such term, covenant or condition or any other term, covenant or condition of this Lease.

40.19.To the extent permitted by Applicable Laws, the parties waive trial by jury in any action, proceeding or counterclaim brought by the other party hereto related to matters arising out

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of orin any way connectedwith this Lease; therelationshipbetweenLandlordand Tenant; Tenant's use or occupancy of the Premises; or any claim of injury or damage related to this Lease or the Premises.

41.Rooftop Installation Area.

41.1.TenantmayusethoseportionsoftheBuildingidentifiedasa"Rooftop InstallationArea"onExhibitAattachedhereto(the"RooftopInstallationArea")solelyto operate, maintain, repair and replace rooftop antennae, mechanical equipment, communications antennas and other equipment installed by Tenant in the Rooftop Installation Area in accordance with this Article ("Tenant'sRooftop Equipment").Tenant's Rooftop Equipment shall be only for Tenant's use of the Premises for the Permitted Use.

41.2.Tenant shall install Tenant's Rooftop Equipment at its sole cost and expense, at such times and in such manner as Landlord may reasonably designate, and in accordance with this Article and the applicable provisions of this Lease regarding Alterations. Tenant's Rooftop Equipment and the installation thereof shall be subject to Landlord's prior written approval, which approval shall not be unreasonably withheld. Among other reasons, Landlord may withhold approval if the installation or operation of Tenant's Rooftop Equipment could reasonably be expected to damage the structural integrity of the Building or to transmit vibrations or noise or cause other adverse effects beyond the Premises to an extent not customary in first class laboratory buildings, unless Tenant implements measures that are acceptable to Landlord in its reasonable discretion to avoid any such damage or transmission.

41.3.Tenant shall comply with any roof or roof-related warranties. Tenant shall obtain a letter from Landlord's roofing contractor within thirty (30) days after completion of any Tenant work on the rooftop stating that such work did not affect any such warranties. Tenant, at its sole cost and expense, shall inspect the Rooftop Installation Area at least annually, and correct any loose bolts, fittings or other appurtenances and repair any damage to the roof caused by the installation or operation of Tenant's Rooftop Equipment. Tenant shall not permit the installation, maintenance or operation of Tenant's Rooftop Equipment to violate any Applicable Laws or constitute a nuisance. Tenant shall pay Landlord within thirty (30) days after demand (a) all applicable taxes, charges, fees or impositions imposed on Landlord by Governmental Authorities as the result of Tenant's use of the Rooftop Installation Areas in excess of those for which Landlord would otherwise be responsible for the use or installation of Tenant's Rooftop Equipment and (b) the amount of any increase in Landlord's insurance premiums as a result of the installation of Tenant's Rooftop Equipment. Upon Tenant's written request to Landlord, Landlord shall use commercially reasonable efforts to cause other tenants to remedy any interference in the operation of Tenant's Rooftop Equipment caused by any such tenants' equipment installed after the applicable piece of Tenant's Rooftop Equipment; provided, however, that Landlord shall not be required to request that such tenants waive their rights under their respective leases.

41.4.If Tenant's Equipment (a) causes physical damage to the structural integrity of the Building, (b) interferes with any telecommunications, mechanical or other systems located at or nearorservicingtheBuildingortheProjectthatwereinstalledpriortotheinstallationof

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Tenant's Rooftop Equipment, (c) interferes with any other service provided to other tenants in the Building or the Project by rooftop or penthouse installations that were installed prior to the installation of Tenant's Rooftop Equipment or (d) interferes with any other tenants' business, in each case in excess of that permissible under Federal Communications Commission regulations, then Tenant shall cooperate with Landlord to determine the source of the damage or interference and promptly repair such damage and eliminate such interference, in each case at Tenant's sole cost and expense, within ten (I0)days after receipt of notice of such damage or interference (which notice may be oral; provided that Landlord also delivers to Tenant written notice of such damage or interference within twenty-four (24) hours after providing oral notice).

41.5.LandlordreservestherighttocauseTenanttorelocateTenant'sRooftop Equipment to comparably functional space on the roof or in the penthouse of the Building by giving Tenant prior written notice thereof.Landlord agrees to pay the reasonable costs thereof. Tenant shall arrange for the relocation of Tenant's Rooftop Equipment within sixty (60) days after receipt of Landlord's notification of such relocation. In the event Tenant fails to arrange for relocation within such sixty (60)-day period, Landlord shall have the right to arrange for the relocation of Tenant's Rooftop Equipment in a manner that does not unnecessarily interrupt or interfere with Tenant's use of the Premises for the Permitted Use.

42.Option to Extend Term.Tenant shall have the option ("Option") to extend the Term by five (5) years as to the entire Premises (and no less than the entire Premises) upon the following terms and conditions.Any extension of the Term pursuant to the Option shall be on all the same terms and conditions as this Lease, except as follows:

42.1.Base Rent at the commencement of the Option term shall equal the greater of(a) one hundred three percent (103%) of the then-current Base Rent and (b) the then-current fair market value for comparable office and laboratory space in the Peninsula submarket of comparable age, quality, level of finish and proximity to amenities and public transit ("FMV"), and in each case shall be further increased on each annual anniversary of the Option term commencement date by three percent (3%).Tenant may, no more than fifteen (15) months prior to the date the Term is then scheduled to expire (and no less than twelve (12) months prior to the date upon which the Term is then scheduled to expire), request Landlord's estimate of the FMV for the Option term.Landlord shall, within fifteen (15) days after receipt of such request, give Tenant a written proposal of such FMV.If Tenant gives written notice to exercise the Option, such notice shall specifY whether Tenant accepts Landlord's proposed estimate of FMV.If Tenant does not accept the FMV, then the parties shall endeavor to agree upon the FMV, taking into account all relevant factors, including (v) the size of the Premises, (w) the length of the Option term, (x) rent in comparable buildings in the relevant submarket, including concessions offeredtonewtenants,suchasfreerent,tenantimprovementallowancesandmoving allowances, (y) Tenant's creditw01ihiness and (z) the quality and location of the Building and the Project.In the event that the parties are unable to agree upon the FMV within thirty (30) days after Tenant notifies Landlord that Tenant is exercising the Option, then either party may request that the same be determined as follows:a senior officer of a nationally recognized leasing brokerage firm with local knowledge of the Peninsula laboratory/research and development leasing submarket (the "Baseball Arbitrator") shall be selected and paid for jointly by Landlord and Tenant.If Landlord and Tenant are unable to agree upon the Baseball Arbitrator, then the

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same shall be designated by the local chapter of the Judicial Arbitration and Mediation Services or any successor organization thereto (the "JAMS").The Baseball Arbitrator selected by the parties or designated by JAMS shall (y) have at least ten (I 0) years' experience in the leasing of laboratory/research and development space in the Peninsula submarket and (z) not have been employed or retained by either Landlord or Tenant or any affiliate of either for a period of at least ten (10) years prior to appointment pursuant hereto. Each of Landlord and Tenant shall submit to the Baseball Arbitrator and to the other party its determination of the FMV.The Baseball Arbitrator shall grant to Landlord and Tenant a hearing and the right to submit evidence.The Baseball Arbitrator shall determine which of the two (2) FMV determinations more closely represents the actual FMV.The arbitrator may not select any other FMV for the Premises other than one submitted by Landlord or Tenant. The FMV selected by the Baseball Arbitrator shall be binding upon Landlord and Tenant and shall serve as the basis for determination of Base Rent payable for the Option term.If, as of the commencement date of the Option term, the amount of Base Rent payable during the Option term shall not have been determined, then, pending such determination, Tenant shall pay Base Rent equal to the Base Rent payable with respect to the last year of the then-current Term.After the final determination of Base Rent payable for the Option term, the parties shall promptly execute a written amendment to this Lease specifying the amount of Base Rent to be paid during the Option term.Any failure of the parties to execute such amendment shall not affect the validity of the FMV determined pursuant to this Section.

42.2.The Option is not assignable separate and apart from this Lease.

42.3.The Option is conditional upon Tenant giving Landlord written notice of its election to exercise the Option at least twelve (12) months prior to the end of the expiration of the then-current Term.Time shall be of the essence as to Tenant's exercise of the Option. Tenant assumes full responsibility for maintaining a record of the deadlines to exercise the Option.Tenant acknowledges that it would be inequitable to require Landlord to accept any exercise of the Option after the date provided for in this Section.

42.4.Notwithstanding anything contained in this Article to the contrary, Tenant shall not have the right to exercise the Option:

(a)During the time commencing from the date Landlord delivers to Tenant a written notice that Tenant is in default under any provisions of this Lease and continuing until Tenant has cured the specified default to Landlord's reasonable satisfaction; or

(b)At any time after any Default as described in Article 31 of the Lease (provided, however, that, for purposes of this Section 42.4(b), Landlord shall not be required to provide Tenant with notice of such Default) and continuing until Tenant cures any such Default, if such Default is susceptible to being cured; or

(c)In the event that Tenant has defaulted in the performance of its obligations under this Lease during the twelve (12)-month period immediately prior to the date that Tenant intends to exercise the Option, whether or not Tenant has cured such defaults.

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42.5.The period of time within which Tenant may exercise the Option shall not be extended or enlarged by reason of Tenant's inability to exercise such Option because of the provisions of Section 42.4.

42.6.All of Tenant's rights under the provisions of the Option shall terminate and be of no further force or effect even after Tenant's due and timely exercise of the Option if, after such exercise, but prior to the commencement date of the new term, (a) Tenant fails to pay to Landlord a monetary obligation of Tenant for a period of twenty (20) days after written notice from Landlord to Tenant, (b) Tenant fails to commence to cure a default (other than a monetary default) within thirty (30) days after the date Landlord gives notice to Tenant of such default or (c) Tenant has Defaulted under this Lease and a service or late charge under Section 31.1 has become payable for any such Default, whether or not Tenant has cured such defaults.

43.Right of First Refusal.For so long as Tenant leases and personally occupies more Rentable Area in the Building than any other tenant, Tenant shall have a right of first refusal ("ROFR") as to any rentable premises in the Building for which Landlord is seeking a tenant ("Available ROFR Premises"); provided, however, that in no event shall Landlord be required to lease any Available ROFR Premises to Tenant if Landlord has not received Tenant's Election Notice (as defined below) within thirty-six (36) months after the Execution Date (i.e., this ROFR will expire thirty-six (36) months after the Execution Date).In the event the expiration date for the term of such Available ROFR Premises would be later than the date of the expiration or earlier termination of this Lease, then the Term for the existing Premises will be extended to such later expiration date, and Base Rent for the existing Premises during such extended Term will be equal to the FMV as determined pursuant to Section 42.1 above.This ROFR will not apply to the lease currently being negotiated by Landlord for a portion of the third (3rd) floor with Novartis Pharmaceuticals Corporation or its designee.Landlord covenants not to amend any currently existing lease with any tenant of any space subject to this ROFR in a manner that would provide such tenant a renewal option or allow such tenant to extend its lease in a manner that would circumvent Tenant's ability to exercise the ROFR, without first obtaining Tenant's prior written consent.In the event Landlord receives from a third party a bona fide offer to lease Available ROFR Premises, Landlord shall provide written notice thereof to Tenant (the "Notice of Offer"), specifying the terms and conditions of a proposed lease to Tenant of the Available ROFR Premises.

43.1.Within ten (10) business days following its receipt of a Notice of Offer, Tenant shall advise Landlord in writing whether Tenant elects to lease all (not just a portion) of the Available ROFR Premises on the terms and conditions set forth in the Notice of Offer ("Tenant's Election Notice").If Tenant fails to provide Tenant's Election Notice to Landlord within such ten (10) business day period, then Tenant shall be deemed to have elected not to lease the Available ROFR Premises.

43.2.If Tenant timely provides Tenant's Election Notice to Landlord that Tenant elects to lease the Available ROFR Premises on the terms and conditions set forth in the Notice of Offer, then Landlord shall lease the Available ROFR Premises to Tenant upon the terms and conditions set forth in the Notice of Offer.

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43.3.If Tenant timely provides Tenant's Election Notice to Landlord that Tenant elects not to lease the Available ROFR Premises on the terms and conditions set forth in the Notice of Offer, or if Tenant fails to provide Tenant's Election Notice to Landlord within the ten (10) business day period described above, then Landlord shall have the right to consummate the lease of the Available ROFR Premises on the same terms as set forth in the Notice of Offer following Tenant's election (or deemed election) not to lease the Available ROFR Premises.If Landlord does not lease the Available ROFR Premises within one hundred eighty (180) days after Tenant's election (or deemed election) not to lease the Available ROFR Premises, then the ROFR shall be fully reinstated (subject to the terms of this Article), and Landlord shall not thereafter lease the Available ROFR Premises without first complying with the procedures set forth in this Article.

43.4.Notwithstanding anything in this Article to the contrary, Tenant shall not exercise the ROFR during such period of time that Tenant is in Default under any provision of this Lease. Any attempted exercise of the ROFR during a period of time in which Tenant is so in Default shall be void and of no effect.In addition, Tenant shall not be entitled to exercise the ROFR if Landlord has given Tenant two (2) or more notices of default under this Lease, whether or not the defaults are cured, during the twelve (12) month period prior to the date on which Tenant seeks to exercise the ROFR.

43.5.Notwithstanding anything in this Lease to the contrary, Tenant shall not assign or transfer the ROFR, either separately or in conjunction with an assignment or transfer of Tenant's interest in the Lease, without Landlord's prior written consent, which consent Landlord may withhold in its sole and absolute discretion.

43.6.If Tenant exercises the ROFR, Landlord does not guarantee that the Available ROFR Premises will be available on the anticipated commencement date for the Lease as to such Premises due to a holdover by the then-existing occupants of the Available ROFR Premises or for any other reason beyond Landlord's reasonable control.

43.7.Notwithstanding anything in this Lease to the contrary, the ROFR shall expire on the date that is thirty-six (36) months following the Execution Date.

44.Storage Area.Commencing asoftheTermCommencement Date, andcontinuing throughout the initial Term, as the same may be extended pursuant to the Option, Tenant shall have the right to use that certain storage area located in a portion of the ground floor surface parking lot serving the Building containing approximately four (4) parking stalls ("Storage Space") at the initial location shown on Exhibit A.Landlord will have the right to cause Tenant to relocate the Storage Space, at Tenant's cost, at any time by providing not less than sixty (60) days' prior written notice.Tenant agrees to accept the Storage Space in its "as-is" condition, and Tenant hereby acknowledges that Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Storage Space.Tenant also acknowledges that Landlord has made no representation or warranty regarding the condition of the Storage Space.The parking stalls occupied by the Storage Space will be counted toward the number of parking stalls to which Tenant is entitled pursuant to this Lease.

44.1.Indemnification.Tenant hereby absolves Landlord from any and all Claims, from any cause whatsoever, that Tenant may suffer to its personal property located anywhere in the

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Storage Space or that it or its agents, employees, principals, invitees or licensees may suffer as a direct or indirect consequence of Tenant's lease of or use of the Storage Space or access areas to the Storage Space.In addition, Tenant hereby agrees to indemnify, defend, protect and hold Landlord harmless from and against any Claims, whether foreseeable or not, resulting as a direct or indirect consequence of Tenant'slease or use of the Storage Space or access areas to the Storage Space.

44.2.Use of Storage Space.Tenant agrees not to store any flammable or highly combustible materials in the Storage Space.Tenant also agrees not to store waste in the Storage Space.Tenant agrees to use the Storage Space solely for storage purposes and not as office space.Tenant agrees that Landlord and its agents may enter and inspect the Storage Space and any goods stored therein at any time during regular business hours upon giving twenty-four (24) hours' prior notice to Tenant and so long as Tenant is provided with an opportunity to have a representative of Tenant present. Tenant shall, at its sole cost and expense, deliver to Landlord a key for any locks installed by Tenant for Landlord's maintenance and inspection and emergency entrance purposes.Landlord will not be required to notify Tenant before entry into the Storage Space in the event of an emergency or for regularly scheduled service and maintenance of the fire sprinkler system serving the Storage Space.Tenant accepts the Storage Space without any warranties or representations and shall maintain and repair the Storage Space at its sole cost and expense.Any improvements or alterations that Tenant desires to make to the Storage Space will be subject to Article 17.

44.3.Assignment and Sublease.The Storage Space may not be assigned or subleased by Tenant or otherwise transferred by Tenant.

44.4.Incorporation of Lease Provisions.The provisions of this Lease with regard to the Premises, to the extent applicable and not inconsistent with the provisions of this Article, shall be deemed to apply to the Storage Space as though the Storage Space is part of the Premises.

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IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date first above written.

LANDLORD:

BMR-201 INDUSTRIAL ROAD LP,

a Delaware limited partnership

TENANT:

NATERA, INC.,

a Delaware corporation

EXIITBIT A

PREMISES.STORAGE SPACE AND MECHANICAL ROOM

A-1

EXlllBIT A-1

INTREXON SPACE

EXHIBIT B

WORK LETTER

This Work Letter (this “Work Letter”) is made and entered into as of the 26th day of October, 2015, by and between BMR-201 INDUSTRIAL ROAD LP, a Delaware limited partnership (“Landlord”), and NATERA, INC., a Delaware corporation (“Tenant”), and is attached to and made a part of that certain Lease dated as of October 26, 2015 (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the “Lease”), by and between Landlord and Tenant for the Premises located at 201 Industrial Road, San Carlos, California.  All capitalized terms used but not otherwise defined herein shall have the meanings given them in the Lease.

1.General Requirements.

1.1.Authorized Representatives.

(a)Landlord designates, as Landlord’s authorized representative (“Landlord’s Authorized Representative”), (i) Joel Leong as the person authorized to initial plans, drawings, approvals and to sign change orders pursuant to this Work Letter and (ii) an officer of Landlord as the person authorized to sign any amendments to this Work Letter or the Lease.Tenant shall not be obligated to respond to or act upon any such item until such item has been initialed or signed (as applicable) by the appropriate Landlord’s Authorized Representative. Landlord may change either Landlord’s Authorized Representative upon one (1) business day’s prior written notice to Tenant.

(b)Tenant designates David Cutler (“Tenant’s Authorized Representative”) as the person authorized to initial and sign all plans, drawings, change orders and approvals pursuant to this Work Letter.Landlord shall not be obligated to respond to or act upon any such item until such item has been initialed or signed (as applicable) by Tenant’s Authorized Representative. Tenant may change Tenant’s Authorized Representative upon one (1) business day’s prior written notice to Landlord.

1.2.Schedule.The schedule for design and development of the Tenant Improvements, including the time periods for preparation and review of construction documents, approvals and performance, shall be in accordance with a schedule to be prepared by Tenant (the “Schedule”). Tenant may prepare multiple Schedules for multiple scopes of work, all of which must be completed prior to September 30, 2017.Tenant shall prepare each Schedule so that it is a reasonable schedule for the completion of the applicable Tenant Improvements.The Schedule(s) shall clearly identify all activities requiring Landlord participation, including specific dates and time periods when Tenant’s contractor will require access to areas of the Project outside of the Premises.As soon as each Schedule is completed, Tenant shall deliver the same to Landlord for Landlord’s approval, which approval shall not be unreasonably withheld, conditioned or delayed. Each Schedule shall be approved or disapproved by Landlord within ten (10) business days after delivery to Landlord. Landlord’s failure to respond within such ten (10) business day period shall be deemed approval by Landlord.If Landlord disapproves a Schedule, then Landlord shall

notifY Tenant in writing of its objections to such Schedule, and the parties shall confer and negotiate in good faith to reach agreement on the Schedule.Each Schedule shall be subject to adjustment as mutually agreed upon in writing by the parties, or as provided in this Work Letter.

1.3.Tenant's Architects. Contractors and Consultants. The architect, engineering consultants, design team, general contractor and subcontractors responsible for the construction of the Tenant Improvements shall be selected by Tenant and approved by Landlord, which approval Landlord shall not unreasonably withhold, condition or delay.Landlord may refuse to consent to the use of any architects, consultants, contractors, subcontractors or material suppliers that do not meet Landlord's standard criteria for qualification of vendors and contractors.All Tenant contracts related to the Tenant Improvements shall provide that Tenant may assign such contracts and any warranties with respect to the Tenant Improvements to Landlord at any time.

2.Tenant Improvements.All TenantImprovements shallbeperformedbyTenant's contractor, at Tenant'ssole cost and expense (subject to Landlord's obligations with respect to payment of the TI Allowance) and in accordance with the Approved Plans (as defined below), the Lease and this Work Letter. To the extent that the total projected cost of the applicable Tenant Improvements (as reasonably projected by Landlord) exceeds the TI Allowance (such excess, the "Excess TI Costs"), Tenant shall pay the costs of the Tenant Improvements on a pari passu basis with Landlord as such costs become due, in the proportion of Excess TI Costs payable by Tenant to the TI Allowance. If the actual Excess TI Costs are less than the Excess TI Costs paid by Tenant to Landlord, Landlord shall promptly return such excess to Tenant after Landlord has completed the final accounting for the Tenant Improvements.If the cost of the Tenant Improvements (as projected by Landlord) increases over Landlord's initial projection, then Landlord may notify Tenant and Tenant shall deposit any additional Excess TI Costs with Landlord in the same way that Tenant deposited the initial Excess TI Costs.If Tenant fails to pay, or is late in paying, any sum due to Landlord under this Work Letter, then Landlord shall have all of the rights and remedies set forth in the Lease for nonpayment of Rent (including the right to interest and the right to assess a late charge), and for purposes of any litigation instituted with regard to such amounts the same shall be considered Rent. All material and equipment furnished by Tenant or its contractors as the Tenant Improvements shall be new or "like new;" the Tenant Improvements shall be performed in a first-class, workmanlike manner; and the quality of the Tenant Improvements shall be of a nature and character not less than the Building Standard.Tenant shall take, and shall require its contractors to take, commercially reasonable steps to protect the Premises during the performance of any Tenant Improvements, including covering or temporarily removing any window coverings so as to guard against dust, debris or damage. All Tenant Improvements shall be performed in accordance with Article 17 of the Lease; provided that, notwithstanding anything in the Lease or this Work Letter to the contrary, in the event of a conflict between this Work Letter and Article 17 of the Lease, the terms of this Work Letter shall govern.

2.1.Work Plans.Tenant shall prepare and submit to Landlord for approval schematics covering the Tenant Improvements prepared in conformity with the applicable provisions of this Work Letter (the "Draft Schematic Plans").The Draft Schematic Plans shall contain sufficient information and detail to accurately describe the proposed design to Landlord and such other information as Landlord may reasonably request.Landlord shall notify Tenant in writing within

ten (I0) business days after receipt of the Draft Schematic Plans whether Landlord approves or objects to the Draft Schematic Plans and of the manner, if any, in which the Draft Schematic Plans are unacceptable.Landlord's failure to respond within such ten (I0) business day period shall be deemed approval by Landlord.If Landlord reasonably objects to the Draft Schematic Plans, then Tenant shall revise the Draft Schematic Plans and cause Landlord's objections to be remedied in the revised Draft Schematic Plans. Tenant shall then resubmit the revised Draft Schematic Plans to Landlord for approval, such approval not tobe unreasonably withheld, conditioned or delayed.Landlord's approval of or objection to revised Draft Schematic Plans and Tenant's correction of the same shall be in accordance with this Section until Landlord has approved the Draft Schematic Plans in writing or been deemed to have approved them. The iteration of the Draft Schematic Plans that is approved or deemed approved by Landlord without objection shall be referred to herein as the "Approved Schematic Plans."

2.2.Construction Plans. Tenant shall prepare final plans and specifications for the Tenant Improvements that (a) are consistent with and are logical evolutions of the Approved Schematic Plans and (b) incorporate any other Tenant-requested (and Landlord-approved) Changes (as defined below). As soon as such final plans and specifications ("Construction Plans") are completed, Tenant shall deliver the same to Landlord for Landlord's approval, which approval shall not be unreasonably withheld, conditioned or delayed.All such Construction Plans shall be submitted by Tenant to Landlord in electronic .pdf, CADD and full-size hard copy formats, and shall be approved or disapproved by Landlord within ten (10) business days after delivery to Landlord. Landlord's failure to respond within such ten (10) business day period shall be deemed approval by Landlord.If the Construction Plans are disapproved by Landlord, then Landlord shall notify Tenant in writing of its objections to such Construction Plans, and the parties shall confer and negotiate in good faith to reach agreement on the Construction Plans. Promptly after the Construction Plans are approved by Landlord and Tenant, two (2) copies of such Construction Plans shall be initialed and dated by Landlord and Tenant, and Tenant shall promptly submit such Construction Plans to all appropriate Governmental Authorities for approval.The Construction Plans so approved, and all change orders specifically permitted by this Work Letter, are referred to herein as the "Approved Plans."Landlord will notifY Tenant, at the time of Landlord's consent to the Construction Plans (provided Tenant requests that Landlord make sure determination at the time it requests consent), which of the Tenant Improvements Landlord will require to be removed upon the expiration or earlier termination of this Lease.

2.3.Changes to the Tenant Improvements. Any changes to the Approved Plans (each, a "Change") shall be requested and instituted in accordance with the provisions of this Article 2 and shall be subject to the written approval of the non-requesting party in accordance with this Work Letter.

(a)Change Request. Either Landlord or Tenant may request Changes after Landlord approves the ApprovedPlansby notifying theotherparty thereofinwriting in substantially the same form as the AlA standard change order form (a "Change Request"), which Change Request shall detail the nature and extent of any requested Changes, including (a) the Change, (b) the party required to perform the Change and (c) any modification of the Approved Plans and the Schedule, as applicable, necessitated by the Change. If the nature of a Change requires revisions to the Approved Plans, then the requesting party shall be solely responsible for

the cost and expense of such revisions and any increases in the cost of the Tenant Improvements asaresultofsuchChange.Change Requests shall besignedby therequestingparty's Authorized Representative.

(b)Approval of Changes.All Change Requests shall be subject to the other party's prior written approval, which approval shall not be unreasonably withheld, conditioned or delayed.The non-requesting party shall have five (5) business days after receipt of a Change Request to notify the requesting party in writing of the non-requesting party's decision either to approve or object to the Change Request.The non-requesting party's failure to respond within such five (5) business day period shall be deemed approval by the non-requesting party.

2.4.Preparation of Estimates. Tenant shall, before proceeding with any Change, using its commercially reasonable efforts, prepare as soon as is reasonably practicable (but in no event more than five (5) business days after delivering a Change Request to Landlord or receipt of a Change Request) an estimate of the increased costs or savings that would result from such Change, as well as an estimate of such Change's effects on the Schedule.Landlord shall have five (5) business days after receipt of such information from Tenant to (a) in the case of a Tenant­ initiated Change Request, approve or reject such Change Request in writing, or (b) in the case of a Landlord-initiated Change Request, notify Tenant in writing of Landlord's decision either to proceed with or abandon the Landlord-initiated Change Request.

2.5.Quality Control Program; Coordination.Tenant shall provide Landlord with information regarding the following (together, the "QCP"):(a) Tenant'sgeneral contractor's quality control program and (b) evidence of subsequent monitoring and action plans.The QCP shall be subject to Landlord's reasonable review and approval and shall specifically address the Tenant Improvements.TenantshallensurethattheQCPisregularly implementedona scheduled basis and shall provide Landlord with reasonable prior notice and access to attend all inspections and meetings between Tenant and its general contractor.At the conclusion of the Tenant Improvements, Tenant shall deliver the quality control log to Landlord, which shall include all records of quality control meetings and testing and of inspections held in the field, including inspections relating to concrete, steel roofing, piping pressure testing and system comm1sswmng.

3.Completion of Tenant Improvements.Tenant, at its sole cost and expense (except for the TI Allowance), shall cause its general contractor to perform and complete the Tenant Improvements in all respects (a) in substantial conformance with the Approved Plans, (b) otherwise in compliance with provisions of the Lease and this Work Letter and (c) in accordance with Applicable Laws, the requirements of Tenant's insurance carriers, the requirements of Landlord's insurance carriers (to the extent Landlord provides its insurance carriers' requirements to Tenant) and the board of fire underwriters having jurisdiction over the Premises. The Tenant Improvements shall be deemed completed at such time as Tenant shall furnish to Landlord (t) evidence satisfactory to Landlord that (i) all Tenant Improvements have been completed and paid for in full (which shall be evidenced by the architect's certificate of completion and the general contractor's and each subcontractor's and material supplier's final unconditional waivers and releases of liens, each in a form acceptable to Landlord and complying with Applicable Laws, and a Certificate of Substantial Completion in the form of the American

Institute of Architects document G704, executed by the project architect and the general contractor, together with a statutory notice of substantial completion from the general contractor), (ii) all Tenant Improvements have been accepted by Landlord, (iii) any and all liens related to the Tenant Improvements have either been discharged of record (by payment, bond, order of a court of competent jurisdiction or otherwise) or waived by the party filing such lien and (iv) no security interests relating to the Tenant Improvements are outstanding, (u) all certifications and approvals with respect to the Tenant Improvements that may be required from any Governmental Authority and any board of fire underwriters or similar body for the use and occupancy of the Premises (including a certificate of occupancy for the Premises for the Permitted Use), (v) certificates of insurance required by the Lease to be purchased and maintained by Tenant, (w) an affidavit from Tenant's architect certifying that all work performed in, on or about the Premises is in accordance with the Approved Plans, (x) complete "as built" drawing print sets, project specifications and shop drawings and electronic CADD files on disc (showing the Tenant Improvements as an overlay on the Building "as built" plans (provided that Landlord provides the Building "as-built" plans provided to Tenant) of all contract documents for work performed by their architect and engineers in relation to the Tenant Improvements, (y) a commissioning report prepared by a licensed, qualified commissioning agent hired by Tenant and approved by Landlord for all new or affected mechanical, electrical and plumbing systems (which report Landlord may hire a licensed, qualified commissioning agent to peer review, and whose reasonable recommendations Tenant's commissioning agent shall perform and incorporate into a revisedreport)and(z)suchother"closeout"materialsasLandlordreasonably requests consistent with Landlord's own requirements for its contractors, such as copies of manufacturers' warranties, operation and maintenance manuals and the like.

4.Insurance.

4.1.Property Insurance. At all times during the period beginning with commencement of construction of the Tenant Improvements and ending with final completion of the Tenant Improvements, Tenant shall cause its contractor to maintain (in addition to the insurance required of Tenant pursuant to the Lease), property insurance insuring Landlord and the Landlord Parties, astheir interests may appear. Such policy shall, on a completed values basis for the full insurable value at all times, insure against loss or damage by fire, vandalism and malicious mischief and other such risks as are customarily covered by the so-called "broad form extended coverage endorsement" upon all Tenant Improvements and the general contractor's and any subcontractors' machinery, tools and equipment, all while each forms a part of, or is contained in, the Tenant Improvements or any temporary structures on the Premises, or is adjacent thereto; provided that, for the avoidance of doubt, insurance coverage with respect to the general contractor'sandanysubcontractors'machinery, tools and equipment shall be carried ona primary basis by such general contractor or the applicable subcontractor(s). Tenant agrees to pay any deductible, and Landlord is not responsible for any deductible, for a claim under such insurance.Such property insurance shall contain an express waiver of any right of subrogation by the insurer against Landlord and the Landlord Parties, and shall name Landlord and its affiliates as loss payees as their interests may appear.

4.2.Workers' Compensation Insurance. At all times during the period of construction of the Tenant Improvements, Tenant shall, or shall cause its contractors or subcontractors to, maintain statutory workers' compensation insurance as required by Applicable Laws.

5.Liability. Tenant assumes sole responsibility and liability for any and all injuries or the death of any persons, including Tenant's contractors and subcontractors and their respective employees, agents and invitees, and for any and all damages to property caused by, resulting from or arising out of any act or omission on the part of Tenant, Tenant's contractors or subcontractors, or their respective employees, agents and invitees in the prosecution of the Tenant Improvements. Tenant agrees to indemnify, save, defend (at Landlord's option and with counsel reasonably acceptable to Landlord) and hold the Landlord Indemnitees harmless from and against all Claims due to, because of or arising out of any and all such injuries, death or damage, whether real or alleged, and Tenant and Tenant's contractors and subcontractors shall assume and defend at their sole cost and expense all such Claims; provided, however, that nothing contained in this Work Letter shall be deemed to indemnify or otherwise hold Landlord harmless from or against liability caused by Landlord's negligence or willful misconduct. Any deficiency in design or construction of the Tenant Improvements shall be solely the responsibility of Tenant, notwithstanding the fact that Landlord may have approved of the same in writing.

6.TI Allowance.

6.1.Application of TI Allowance. Landlord shall contribute the TI Allowance and any of Tenant's pari passu payment of Excess TI Costs advanced by Tenant to Landlord toward the costs and expenses incurred in connection with the performance of the Tenant Improvements, in accordance with Article 4 of the Lease.If the entire TI Allowance is not applied toward or reserved for the costs of the Tenant Improvements, then Tenant shall not be entitled to a credit of such unused portion of the TI Allowance.Tenant may apply the TI Allowance for the payment of design, construction and other costs in accordance with the terms and provisions of the Lease.

6.2.Approval of Budget for the Tenant Improvements. Notwithstanding anything to the contrary set forth elsewhere in this Work Letter or the Lease, Landlord shall not have any obligation to expend any portion of the TI Allowance until Landlord and Tenant shall have approved in writing the budget for the applicable Tenant Improvements (the "Approved Budget"). Prior to Landlord's approval of the Approved Budget, Tenant shall pay all of the costs and expenses incurred in connection with the applicable Tenant Improvements as they become due. Landlord shall not be obligated to reimburse Tenant for costs or expenses relating to the Tenant Improvements that exceed the amount of the TI Allowance. Landlord shall not unreasonably withhold, condition or delay its approval of any budget for Tenant Improvements that is proposed by Tenant.

6.3.Fund Requests.Upon submission by Tenant to Landlord of (a) a statement (a "Fund Request") setting forth the total amount of the TI Allowance requested, (b) a summary of the Tenant Improvements performed using AlA standard form Application for Payment (G 702) executed by the general contractor and by the architect, (c) invoices from the general contractor, the architect, and any subcontractors, material suppliers and other parties requesting payment with respect to the amount of the TI Allowance then being requested, and (d) unconditional lien

releases from the general contractor and each subcontractor and material supplier with respect to previous payments made by either Landlord or Tenant for the Tenant Improvements in a form acceptable to Landlord and complying with Applicable Laws and (e) conditional lien releases from the general contractor and each subcontractor and material supplier with respect to the Tenant Improvements performed that correspond to the Fund Request each in a form acceptable to Landlord and complying with Applicable Laws, then Landlord shall, within thirty (30) days following receipt by Landlord of a Fund Request and the accompanying materials required by thisSection, pay to(as elected by Landlord) the applicable contractors, subcontractors and materialsuppliersorTenant(forreimbursementforpaymentsmadebyTenanttosuch contractors, subcontractors or material suppliers either prior to Landlord's approval of the Approved TI Budget or as a result of Tenant's decision to pay for the Tenant Improvements itself and later seek reimbursement from Landlord in the form of one lump sum payment in accordance with the Lease and this Work Letter), the amount of Tenant Improvement costs set forth in such Fund Request (or Landlord's pari passu share thereof if Excess TI Costs exist based on the ApprovedBudget);provided,however,thatLandlordshallnotbeobligatedtomakeany payments under this Section until the budget for the applicable Tenant Improvements is approved in accordance with Section 6.2, and any Fund Request under this Section shall be subject to the payment limits set forth in Section 6.2 above and Article 4 of the Lease.Notwithstanding anything in this Section to the contrary, Tenant shall not submit a Fund Request more often than every thirty (30) days.Any additional Fund Requests submitted by Tenant shall be void and of no force or effect.

6.4.Accrual Information.In addition to the other requirements of this Section 6, Tenant shall, no later than the second (2"d) business day of each month until the Tenant Improvements are complete, provide Landlord with an estimate of (a) the percentage of design and other soft cost work that has been completed, (b) design and other soft costs spent through the end of the previous month, both from commencement of the Tenant Improvements and solely for the previous month, (c) the percentage of construction and other hard cost work that has been completed, (d) construction and other hard costs spent through the end of the previous month, both from commencement of the Tenant Improvements and solely for the previous month, and (e) the date of Substantial Completion of the Tenant Improvements.

7.Miscellaneous.

7.1.Incorporation of Lease Provisions.Sections 40.6 through 40.19 of the Lease are incorporated into this Work Letter by reference, and shall apply to this Work Letter in the same way that they apply to the Lease.

7.2.General. Except as otherwise set forth in the Lease or this Work Letter, this Work Letter shall not apply to improvements performed in any additional premises added to the Premises at any time or from time to time, whether by any options under the Lease or otherwise; or to any portion of the Premises or any additions to the Premises in the event of a renewal or extension of the original Term, whether by any options under the Lease or otherwise, unless the Lease or any amendment or supplement to the Lease expressly provides that such additional premises are to be delivered to Tenant in the same condition as the initial Premises.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Work Letter to be effective on the date first above written.

LANDLORD:

By:

Name:

Title:

TENANT:

NATERA, INC.,

a Delaware corporation

By:

Name:

Title:

IN WITNESS WHEREOF, Landlord and Tenant  have executed  this Work Letter to be effective on the date first above written.

LANDLORD:

BMR-201 INDUSTRIAL ROAD LP, a

Delaware limited partnership

By:

Name:

Title:

TENANT:

NATERA, INC.,

a Delaware corporation

EXHIBITB-1

TENANT WORK INSURANCE SCHEDULE

Tenant shall be responsible for requiring all of Tenant contractors doing construction or renovation work to purchase and maintain such insurance as shall protect it from the claims set forth below which may arise out of or result from any Tenant Work whether such Tenant Work is completed by Tenant or by any Tenant contractors or by any person directly or indirectly employed by Tenant or any Tenant contractors, or by any person for whose acts Tenant or any Tenant contractors may be liable:

I.Claims  under  workers'  compensation, disability  benefit  and  other  similar  employee benefit acts which are applicable to the Tenant Work to be performed.

2.Claims for damages because of bodily injury, occupational sickness or disease, or death of employees under any applicable employer's liability law.

3.Claims for damages because of bodily injury, or death of any person other than Tenant's or any Tenant contractors' employees.

4.Claims  for  damages  insured  by  usual  personal  injury  liability  coverage  which  are sustained (a) by any person as a result of an offense directly or indirectly related to the employment of such person by Tenant or any Tenant contractors or (b) by any other person.

5.Claims for  damages, other  than  to  the  Tenant  Work  itself,  because of injury to  or destruction of tangible property, including loss of use therefrom.

6.Claims for damages because of bodily injury or death of any person or property damage arising out of the ownership, maintenance or use of any motor vehicle.

Tenant contractors' Commercial General Liability Insurance shall include premises/operations (including explosion, collapse and underground coverage if such Tenant Work involves any underground work), elevators, independent contractors, products and completed operations, and blanket contractual liability on all written contracts, all including broad form property damage coverage.

Tenant contractors' Commercial General, Automobile, Employers and Umbrella LiabilityInsurance shall be written for not less than limits of liability as follows:

a.Commercial General Liability:	Commercially reasonable amounts, but in
	any event no less than $1,000,000 per
BodilyInjuryandProperty	occurrence and $2,000,000 general
Damage	aggregate, with $2,000,000 products and
	completed operations aggregate.

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b.Commercial Automobile Liability:	$1,000,000 per accident
BodilyInjuryandProperty
Damage
c.Employer's Liability:
Each Accident	$500,000
Disease- Policy Limit	$500,000
Disease - Each Employee	$500,000
d.Umbrella Liability:	Commerciallyreasonableamounts
	(excess of coverages a, b and c above),
BodilyInjuryandProperty	but in any event no less than $5,000,000
Damage	per occurrence I  aggregate.

All subcontractors for Tenant contractors shall carry the same coverages and limits as specified above, unless different limits are reasonably approved by Landlord.  The foregoing policies shall contain a provision that coverages afforded under the policies shall not be canceled or not renewed until at least thirty (30) days' prior written notice has been given to the Landlord. Certificates of insurance including required endorsements showing such coverages to be in force shall be filed with Landlord prior to the commencement of any Tenant Work and prior to each renewal.  Coverage for completed operations must be maintained for the lesser of ten (I0) years and the applicable statue of repose following completion of the Tenant Work, and certificates evidencing this coverage must be provided to Landlord.  The minimum A.M. Best's  rating of each insurer shall be A- VII.   Landlord and its mortgagees shall be named as an additional insureds under Tenant contractors' Commercial General Liability, Commercial Automobile Liability and Umbrella Liability Insurance policies as respects liability arising from work or operations performed, or ownership, maintenance or use of autos, by or on behalf of such contractors.  Each contractor and its insurers shall provide waivers of subrogation with respect to any claims covered or that should have been covered by valid and collectible insurance, including any deductibles or self-insurance maintained thereunder.

If any contractor's work involves the handling or removal of asbestos (as determined by Landlord in its sole and absolute discretion), such contractor shall also carry Pollution Legal Liability insurance.  Such coverage shall include bodily injury, sickness, disease, death or mental anguish or shock sustained by any person; property damage, including physical injury to or destruction of tangible property (including the resulting loss of use thereof), clean-up costs and the loss of use of tangible property that has not been physically injured or destroyed; and defense costs, charges and expenses incurred in the investigation, adjustment or defense of claims for such damages. Coverage  shall  apply  to  both  sudden  and  non-sudden  pollution  conditions  including  the discharge,  dispersal,  release  or  escape  of  smoke,  vapors,  soot,  fumes, acids, alkalis,  toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water.Claims-made coverage is permitted, provided the policy retroactive date is continuously maintained prior to the Term Commencement Date, and coverage is continuously maintained during all  periods in which

B-1-2

Tenant occupies the  Premises.Coverage shall be maintained with limits of  not less than$1,000,000 per incident with a $2,000,000 policy aggregate.

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EXHIBITC

ACKNOWLEDGEMENT OF TERM COMMENCEMENT DATE
AND TERM EXPIRATION DATE

THIS ACKNOWLEDGEMENT OF TERM COMMENCEMENT  DATE AND TERM EXPIRATION  DATE  is  entered  into  as of [], 20[], with  reference  to  that certain Lease (the "Lease")  dated as of October [], 2015, by NATERA, INC., a Delaware corporation ("Tenant"), in favor of BMR-201  INDUSTRIAL ROAD LP, a Delaware limited partnership ("Landlord"). Allcapitalizedtermsusedhereinwithoutdefinitionshallhavethemeanings ascribed to them in the Lease.

Tenant hereby confirms the following:

1.Tenant accepted possession of the Premises for use in accordance with the Permitted Useon [               ], 20[   ].  Tenant first occupied the Premises for the Permitted Use on [               ], 20[   ].  Tenant first occupied the Premises for the Permitted Use on [

2.The Premises are in good order, condition and repair.

3.The Tenant Improvements are Substantially Complete.

4.All  conditions  of  the  Lease  to  be  performed  by  Landlord  as  a  condition  to  the full effectiveness of the Lease have been satisfied, and Landlord has fulfilled all of its duties in the nature of inducements offered to Tenant to lease the Premises.

5.In accordance  with the provisions  of Article  4 of the Lease, the Term Commencement Date is [              ], 20[  ], and, unless the Lease is terminated prior to the Term Expiration Date pursuant to its terms, the Term Expiration Date shall be [              ], 20[  ].

6.The  Lease  is  in  full  force  and  effect,  and  the  same  represents  the  entire  agreement between Landlord and Tenant concerning the Premises[, except [              ]].

7.To Tenant's knowledge, Tenant has no existing defenses against the enforcement of the Lease by Landlord, and there exist no offsets or credits against Rent owed or to be owed by Tenant.

8.The obligation  to pay Rent is presently  in effect and all Rent obligations  on the part of Tenant under the Lease commenced to accrue on [              ], 20[  ], with Base Rent payable on the dates and amounts set forth in the chart below:

Dates	Approximate Square Feet of Rentable Area	Base Rent Per Square Foot of Rentable Area	Monthly Base Rent	Annual Base Rent
[]	[]	$[]	$[]	$[]

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[  ]/[ ]/[ ] [monthly][OR][annually]

9.The undersigned Tenant has not made any prior assignment,  transfer, hypothecation  or pledge of the Lease or of the rents thereunder or sublease of the Premises or any portion thereof.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

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IN   WITNESS   WHEREOF,   Tenant   has   executed   this   Acknowledgment of TermCommencement Date and Term Expiration Date as of the date first written above.

TENANT:

NATERA, INC.,

a Delaware corporation

By:

Name:

Title:

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EXHIBITD

[Intentionally omitted]

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EXHIBIT E

FORM OF LETTER OF CREDIT

[On letterhead or L/C letterhead of lssuer]

LETTER OF CREDIT

Date:	, 20
		(the "Beneficiary")
Attention:
LIC. No.:
Loan No.:

Ladies and Gentlemen:

We establish in favor of Beneficiary our irrevocable and unconditional Letter of Credit numbered as identified above (the "L/C") for an aggregate amount of $, expiring at:00 p.m. on                or, if such day is not a Banking Day, then the next succeeding Banking Day (such date, as extended from time to time, the "Expiry Date"). "Banking Day" means a weekday except a weekday when commercial banks  in are  authorized  or required to close.

We authorize Beneficiary to draw on us (the "Issuer") for the account of(the"Account Party"), under the terms and conditions of this L/C.

Funds under this L/C are available by presenting the following documentation (the "Drawing Documentation"): (a) the original L/C and (b) a sight draft substantially in the form of Attachment I, with blanks filled in and bracketed items provided as appropriate. No other evidence of authority, certificate, or documentation is required.

Drawing Documentation must be presented at Issuer's office at                   on or beforetheExpiryDatebypersonalpresentation,courierormessengerservice,orfax. Presentation by fax shall be effective upon electronic confirmation of transmission as evidenced by a printed report from the sender's fax machine. After any fax presentation, but not as a condition to its effectiveness, Beneficiary shall with reasonable promptness deliver the original Drawing Documentation by any other means.Issuer will on request issue a receipt for Drawing Documentation.

We agree, irrevocably, and irrespective of any claim by any other person, to honor drafts drawn under and in conformity with this L/C, within the maximum amount of this L/C, presented to us on or before the Expiry Date, provided we also receive (on or before the Expiry Date) any other Drawing Documentation this L/C requires.

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We shall pay this LIC only from our own funds by check or wire transfer, in compliance with the Drawing Documentation.

If Beneficiary presents proper Drawing Documentation to us on or before the Expiry Date, then we shall pay under this LIC at or before the following time (the "Payment Deadline"): (a) if presentment is made at or before noon of any Banking Day, then the close of such Banking Day; and (b) otherwise, the close of the next Banking Day. We waive any right to delay payment beyond the Payment Deadline. If we determine that Drawing Documentation is not proper, then we shall so advise Beneficiary in writing, specifying all grounds for our determination, within one Banking Day after the Payment Deadline.

Partial drawings are permitted. This LIC shall, except to the extent reduced thereby, survive any partial drawings.

We shall have no duty or right to inquire into the validity of or basis for any draw under this LIC or any Drawing Documentation.  We waive any defense based on fraud or any claim of fraud.

The Expiry Date shall automatically be extended by one year (but never beyond(the "Outside Date")) unless, on or before the date 90 days before any Expiry Date, we have given Beneficiary notice that the Expiry Date shall not be so extended (a "Nonrenewal Notice"). We shall promptly upon request confirm any extension of the Expiry Date under the preceding sentence by issuing an amendment to this LIC, but such an amendment is not required for the extension to be effective. We need not give any notice of the Outside Date.

Beneficiary may from time to time without charge transfer this L/C, in whole but not in part, to any transferee (the "Transferee").  Issuer shall look solely to Account Party for payment of any fee for any transfer of this LIC.   Such payment is not a condition to any such transfer. Beneficiary or Transferee shall consummate such transfer by delivering to Issuer the original of this LIC and a Transfer Notice substantially in the form of Attachment 2, purportedly signed by Beneficiary, and designating Transferee.  Issuer shall promptly reissue or amend this L/C in favor of Transferee as Beneficiary. Upon any transfer, all references to Beneficiary shall automatically refer to Transferee, who may then exercise all rights of Beneficiary. Issuer expressly consents to any transfers made from time to time in compliance with this paragraph.

Any notice to Beneficiary shall be in writing and delivered by hand with receipt acknowledged or by overnight delivery service such as FedEx (with proof of delivery) at the above address, or such other address as Beneficiary may specify by written notice to Issuer. A copy of any such notice shall also be delivered, as a condition to the effectiveness of such notice, to:                         (or such replacement as Beneficiary designates from time to time by written notice).

No amendment that adversely affects Beneficiary shall be effective without Beneficiary's written consent.

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This LIC is subject to and incorporates by reference: (a) the International Standby Practices 98 ("ISP 98"); and (b) to the extent not inconsistent with ISP 98, Article 5 of the Uniform Commercial Code of the State of New York.

Very truly yours,

[Issuer Signature]

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ATTACHMENT 1 TO EXHIBIT E

FORM OF SIGHT DRAFT

[BENEFICIARY LETTERHEAD)

TO:

[Name and Address of lssuer]

SIGHT DRAFT

AT SIGHT, pay to the Order of, the sum of United StatesDollars ($.  Drawn under [Issuer] Letter of Credit No.dated

[Issuer is hereby directed to pay the proceeds of this Sight Draft solely to the following account:.]

[Name and signature block, with signature or purported signature of Beneficiary]

Date:

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ATTACHMENT 2 TO EXHIBIT E

FORM OF TRANSFER NOTICE

[BENEFICIARY LETTERHEAD)

TO:

[Name and Address of lssuer] (the "Issuer")

TRANSFER NOTICE

By signing below, the undersigned, Beneficiary (the "Beneficiary") under Issuer's Letter of Credit No.dated (the "L/C"),  transfers the  LIC to  the following transferee (the 'Transferee"):

[Transferee Name and Address]

The original LIC is enclosed. Beneficiary directs Issuer to reissue or amend the LIC in favor of Transferee as Beneficiary. Beneficiary represents and warrants that Beneficiary has not transferred, assigned, or encumbered the LIC or any interest in the LIC, which transfer, assignment, or encumbrance remains in effect.

[Name and signature block, with signature or purported signature of Beneficiary]

Date:

E-2

EXHIBITF

RULES AND REGULATIONS

NOTHING IN THESE RULES AND REGULATIONS ("RULES AND REGULATIONS") SHALL SUPPLANT ANY PROVISION OF THE LEASE. IN THE EVENT OF A CONFLICT OR INCONSISTENCY BETWEEN THESE RULES AND REGULATIONS AND THE LEASE, THE LEASE SHALL PREVAIL.

1.No Tenant Party shall encumber or obstruct the common entrances, lobbies, elevators, sidewalks and stairways of the Building(s) or the Project or use them for any purposes other than ingress or egress to and from the Building(s) or the Project.

2.Except as specifically provided in the Lease, no sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside of the Premises or the Building(s) without Landlord's prior written consent. Landlord shall have the right to remove, at Tenant's sole cost and expense and without notice, any sign installed or displayed in violation of this rule.

3.Except as set forth in Section 12.6 of the Lease, if Landlord objects in writing to any curtains, blinds, shades, screens, hanging plants or other similar objects attached to or used in connection with any window or door of the Premises or placed on any windowsill, and (a) such window, door or windowsill is visible from the exterior of the Premises and (b) such curtain, blind, shade, screen, hanging plant or other object is not included in plans approved by Landlord, then Tenant shall promptly remove such curtains, blinds, shades, screens, hanging plants or other similar objects at its sole cost and expense.

4.No deliveries shall be made that impede or interfere with other tenants in or the operation of the Project.  Movement of furniture, office equipment or any other large or bulky material(s) through the Common Area shall be restricted to such hours as Landlord may designate and shall be subject to reasonable restrictions that Landlord may impose.

5.Tenant shall not place a load upon any floor of the Premises that exceeds the load per square foot that (a) such floor was designed to carry or (b) is allowed by Applicable Laws. Fixtures and equipment that cause noises or vibrations that may be transmitted to the structure of the Building(s) to such a degree as to be objectionable to other tenants shall be placed and maintained by Tenant, at Tenant's sole cost and expense, on vibration eliminators or other devices sufficient to eliminate such noises and vibrations to levels reasonably acceptable to Landlord and the affected tenants of the Project.

6.Tenant shall not use any method of HVAC other than that present at the Project and serving the Premises as of the Execution Date.

7.Tenant   shall not install   any radio, television  or   other  antennae;  cell   or  other communications equipment; or other devices on the roof or exterior walls of the Premises except in accordance with the Lease.  Tenant shall not interfere with radio, television or other digital or electronic communications at the Project or elsewhere.

F-1

8.Canvassing, peddling, soliciting and distributing handbills or any other written material within, on or around the Project (other than within the Premises) are prohibited.  Tenant shall cooperate with Landlord to prevent such activities by any Tenant Party.

9.Tenant shall store all of its trash, garbage and Hazardous Materials in receptacles within its Premises or in receptacles designated by Landlord outside of the Premises.  Tenant shall not place  in  any  such  receptacle any material that  cannot be disposed  of  in  the  ordinary and customary  manner  of  trash,  garbage  and  Hazardous  Materials  disposal.    Any Hazardous Materials transported through Common Area shall be held in secondary containment devices. Tenant shall be responsible, at its sole cost and expense, for Tenant's removal of its trash, garbage and Hazardous Materials.  Tenant is encouraged to participate in the waste removal and recycling program in place at the Project.

10.The Premises shall not be used for lodging or for any improper, immoral or objectionable purpose.  No cooking shall be done or permitted in the Premises; provided, however, that Tenant may use (a) equipment approved in accordance with the requirements of insurance policies that Landlord or Tenant is required to purchase and maintain pursuant to the Lease for brewing coffee, tea, hot chocolate and similar beverages, (b) microwave ovens for employees' use and (c) equipment shown on Tenant Improvement plans approved by Landlord; provided, further, that any such equipment and microwave ovens are used in accordance with Applicable Laws.

11.Tenant shall not, without Landlord's prior written consent, use the name of the Project, if any, in connection with or in promoting or advertising Tenant's business except as Tenant's address.

12.Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any Governmental Authority.

13.Tenant assumes any and all responsibility for protecting the Premises from theft, robbery and pilferage, which responsibility includes keeping doors locked and other means of entry to the Premises closed.

14.Tenant shall not modify any locks to the  Premises without Landlord's  prior written consent, which consent Landlord shall not unreasonably withhold, condition or delay.  Tenant shall  furnish  Landlord  with  copies  of  keys,  pass cards or  similar devices for  locks to the Premises.

15.Tenant shall cooperate and participate in all reasonable security programs affecting thePremises.

16.Tenant shall not permit any animals in the Project, other than for service animals or for use in laboratory experiments.

17.Bicycles shall not be taken into the Building(s) (including the elevators and stairways of the Building) except into areas designated by Landlord.

F-2

18.The water and wash closets and other plumbing fixtures shall  not  be used for  any purposes other than those for which they were constructed, and no sweepings, rubbish, rags or other substances shall be deposited therein.

19.Discharge of industrial sewage shall only be permitted if Tenant, at its sole expense, first obtains all necessary permits and licenses therefor from all applicable Governmental Authorities.

20.Smoking is prohibited inside the Building, except in designated outdoor areas of theProject (if any).

21.The Project's hours of operation are currently 24 hours a day, seven days a week.

22.Tenant  shall  comply with all  orders,  requirements and  conditions now  or  hereafter imposed  by  Applicable  Laws  or  Landlord  ("Waste  Regulations")  regarding the  collection, sorting, separation and  recycling of  waste products, garbage, refuse and trash generated by Tenant (collectively, "Waste Products"), including (without limitation) the separation of Waste Products into receptacles reasonably approved by Landlord and the removal of such receptacles in accordance with any collection schedules prescribed by Waste Regulations.

23.Tenant, at Tenant's sole cost and expense, shall cause the Premises to be exterminated on an as-needed basis, but at a minimum quarterly, to Landlord's reasonable satisfaction and shall cause all portions of the Premises used for the storage, preparation, service or consumption of food or beverages to be cleaned daily in a manner reasonably satisfactory to Landlord, and to be treated against infestation by insects, rodents and other vermin and  pests whenever there is evidence of any infestation.   Tenant shall not permit any person to enter the Premises or the Project for the purpose of providing such extermination services, unless such persons have been approved by Landlord.  If requested by Landlord, Tenant shall, at Tenant's sole cost and expense, store any refuse generated in the Premises by the consumption of food or beverages in a cold box or similar facility.

24.If Tenant desires to use any portion of the Common Area for a Tenant-related event, Tenant must notify Landlord in writing at least ten (10) business days prior to such event on the form attached as Attachment 1 to this Exhibit, which use shall be subject to Landlord's prior written consent, not to be unreasonably withheld, conditioned or delayed.  Notwithstanding anything in this Lease or the completed and executed Attachment to the contrary, Tenant shall be solely responsible for setting up and taking down any equipment or other materials required for the event, and shall promptly pick up any litter and report any property damage to Landlord related to the event.  Any use of the Common Area pursuant to this Section shall be subject to the provisions of Article 28 of the Lease.

Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Project, including Tenant.   These Rules and Regulations are in addition to, and shall not be construed to in any way modifY or amend, in whole or in part, the terms covenants, agreements

F-3

and conditions of the Lease. Landlord reserves the right to make such other and reasonable additional rules and regulations as, in its judgment, may from time to time be needed for safety and security, the care and cleanliness of the Project, or the preservation of good order therein; provided, however, that Tenant shall not be obligated to adhere to such additional rules or regulations until Landlord has provided Tenant with written notice thereof. Tenant agrees to abide by these Rules and Regulations and any such additional rules and regulations issued or adopted by Landlord. Tenant shall be responsible for the observance of these Rules and Regulations by all Tenant Parties.

F-4

ATTACHMENT 1 TO EXHIBIT F

REQUEST FOR USE OF COMMON AREA

REQUEST FOR USE OF COMMON AREA

Date of Request:
Landlord/Owner:
Tenant/Requestor:
Property Location:
Event Description:
Proposed Plan for Security& Cleaning:
Date of Event:
Hours of Event: (to include set-up and take down):
Location at Property (see attachedmap):
Number of Attendees:	Open
to the Public?     [_] YES      [_]NO
Food and/or Beverages?        [_]YES       [_]NO
If YES:
●        Will food be prepared on site?    [_] YES    [_]NO
●        Please describe:
●        Will alcohol be served?    [_] YES    [_]NO
●        Please describe:
Will attendees be charged for alcohol?    [_]YES    [_]NO

F-1-1

●        Is alcohol license or permit required? Lj  YES    Lj  NO

●        Does caterer have alcohol license or permit: Lj  YES    Lj  NOLj  N/A

Other Amenities (tent, booths, band, food trucks, bounce house, etc.):

Other Event Details or Special Circumstances:

The undersigned certifies that the foregoing is true, accurate and complete and he/she is duly authorized to sign and submit this request on behalf of the Tenant/Requestor named above.

[INSERT NAME OF TENANT/REQUESTOR]

By:

Name:

Title:

Drue:

F-1-2

EXHIBIT G

[Intentionally omitted]

G-1

EXHIBITH TENANT'S

PROPERTY

H-1

EXHIBIT I

FORM OF ESTOPPEL CERTIFICATE

To:BMR-201 Industrial Road LP

17190 Bernardo Center Drive

San Diego, California  92128

Attention: Vice President, Real Estate Legal

BioMed Realty, L.P.

17190 Bernardo Center Drive

San Diego, California  92128

Re:Approximately 88,392 Square Feet of Rentable Area on the Fourth Floor (the "Premises")at 201 Industrial Road, San Carlos, California (the "Property")

The undersigned tenant ("Tenant") hereby certifies to you as follows:

I.Tenant is a tenant at the Property under a lease (the "Lease") for the Premises dated as of October [  ], 2015.  The Lease has not been cancelled, modified, assigned, extended or amended [except as follows:   [              ]], and there are no other agreements, written or oral, affecting or relating to Tenant's lease  of the Premises  or any other space at the Property.   The lease term expires on [              ], 20[  ].

2.Tenant took possession of the Premises, currently consisting of [              ] square feet, on [              ], 20[  ], and commenced to pay rent on [              ], 20[  ]. Tenant has full possession of the Premises, has not assigned the Lease or sublet any part of the Premises, and does not hold the Premises under an assignment or sublease [, except as follows:  [            ]].

3.All base rent, rent escalations and additional rent under the Lease have been paid through [              ], 20[  ]. There is no prepaid rent [, except $[              ]], and the amount of security deposit is $[              ] [in cash][OR][in  the form of a letter of credit].   Tenant currently has no right to any future rent abatement under the Lease.

4.Base rent is currently payable in the amount of $ L[                                   _j] per month.

5.Tenantiscurrentlypayingestimatedpaymentsofadditionalrentof$[  ]per month onaccount ofrealestate taxes,insurance, management feesandCommon Area maintenance expenses.

6.All work to be performed  for Tenant  under the Lease  has been performed  as required under the Lease and has been accepted by Tenant[,  except [              ]], and all allowances to be paid to Tenant, including allowances  for tenant improvements,  moving expenses or other items, have been paid.

7.To Tenant's  knowledge,  the Lease is in full force and effect, free from default and free from any event that could become a default under the Lease, and Tenant has no claims against

I-1

The landlord or offsets or defenses against rent, and there are no disputes with the landlord. Tenant has received no notice of prior sale, transfer, assignment, hypothecation or pledge of the Lease or of the rents payable thereunder[, except [              ]].

8.Tenant has the following expansion rights or options for leasing additional space at theProperty: 

9.To Tenant's  knowledge, no hazardous wastes have been generated, treated, stored or disposed of by or on behalf of Tenant in, on or around the Premises or the Project in violation of any environmental laws.

I0.The  undersigned  has  executed  this  Estoppel  Certificate  with  the  knowledge  and understanding that [INSERT NAME OF LANDLORD, PURCHASER OR LENDER, AS APPROPRIATE] or  its  assignee  is  [acquiring  the  Property/making a  loan  secured  by  the Property] in reliance on this certificate and that the undersigned shall be bound by this certificate. The statements contained herein may be relied upon by [INSERT NAME OF PURCHASER OR LENDER, AS APPROPRIATE], BMR-201 Industrial Road LP, BioMed Realty, L.P., BioMed Realty Trust, Inc., and any [other] mortgagee of the Property and their respective successors and assigns.

Any capitalized terms not defined herein shall have the respective meanings given in the Lease.

Dated this day of 20[  ]

NATERA, INC.,

a Delaware corporation

By:

Name

Title:

I-2

EX-21.1

Exhibit 21.1

Subsidiaries of Natera, Inc.

Name of Subsidiary	State of Incorporation
Natera International, Inc.	Delaware

* Pursuant to Item 601(b)(21)(ii) of Regulation S-K, the names of other subsidiaries of Natera, Inc. are omitted because, considered in the aggregate, they would not constitute a significant subsidiary as of the end of the year covered by this annual report on Form 10-K.

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement (Form S-8No. 333-205441) pertaining to the 2007 Stock Plan, 2015 Equity Incentive Plan and 2015 Employee Stock Purchase Plan of Natera, Inc. of our report dated March 23, 2016, with respect to the consolidated financial statements of Natera, Inc. included in its Annual Report (Form 10-K) for the year ended December 31, 2015, filed with the Securities and Exchange Commission.

/s/ Ernst & Young LLP

Redwood City, California

March 23, 2016

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Matthew Rabinowitz, certify that:

1. I have reviewed this Annual Report on Form 10-K of Natera, Inc.;

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)) 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, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	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
(c)	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.

3
Date:  March23, 2016	By:	/s/   Matthew Rabinowitz
	Name:	Matthew Rabinowitz
	Title:	Chief Executive Officer, President, and Chairman
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER

PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Herm Rosenman, certify that:

1. I have reviewed this Annual Report on Form 10-K of Natera, Inc.;

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)) 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, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	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
(c)	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.

3
Date:  March 23, 2016	By:	/  s /    Herm Rosenman
	Name:	Herm Rosenman
	Title:	Chief Financial Officer
		(Principal Financial and Accounting 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

I, Matthew Rabinowitz, Chief Executive Officer and President of Natera, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Annual Report on Form 10-K for the Company for the fiscal year ended December 31, 2015 (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.

3
Date:  March 23, 2016	By:	/ s /    Matthew Rabinowitz
	Name:	Matthew Rabinowitz
	Title:	Chief Executive Officer, President, and Chairman
		(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Herm Rosenman, Chief Financial Officer of Natera, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Annual Report on Form 10-K for the Company for the fiscal year ended December 31, 2015 (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.

3
Date:  March 23, 2016	By:	/  s /    Herm Rosenman
	Name:	Herm Rosenman
	Title:	Chief Financial Officer
		(Principal Financial and Accounting Officer)

XML

Document and Entity Information - USD ($) $ in Billions	12 Months Ended
	Dec. 31, 2015	Feb. 29, 2016	Jun. 30, 2015
Document and Entity Information
Entity Registrant Name	Natera, Inc.
Entity Central Index Key	0001604821
Document Type	10-K
Document Period End Date	Dec. 31, 2015
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Filer Category	Non-accelerated Filer
Entity Public Float			$ 0.6
Entity Common Stock, Shares Outstanding		50,852,374
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	FY

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Current assets:
Cash and cash equivalents	$ 28,947	$ 87,176
Restricted cash, current portion	901	503
Short-term investments	201,586
Accounts receivable, net of allowance of $971 in 2015 and $527 in 2014	5,862	5,942
Inventory	8,093	11,542
Prepaid expenses and other current assets	5,337	1,314
Total current assets	250,726	106,477
Property and equipment, net	12,710	14,574
Restricted cash, long term portion	683	808
Other assets	1,121	1,764
Total assets	265,240	123,623
Current liabilities:
Accounts payable	7,332	8,867
Accrued compensation	8,552	5,980
Other accrued liabilities	18,708	10,341
Deferred revenue	144	112
Equipment loan, current portion		2,340
Short-term debt financing	42,090
Warrants	3,649	2,232
Total current liabilities	80,475	29,872
Equipment loan, long term portion		3,510
Senior secured term loan		20,964
Total long-term liabilities		24,474
Total liabilities	$ 80,475	$ 54,346
Commitments and contingencies (Note 6)
Convertible preferred stock issuable in series, $0.0001 par value: 50,000 and 51,233 shares authorized at December 31, 2015 and December 31, 2014, respectively, 0 and 31,397 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively; aggregate liquidation preference of $133,757 as of December 31, 2014		$ 240,612
Stockholders’ deficit:
Preferred stock, $0.0001 par value: 50,000 shares authorized; no shares issued and outstanding at December 31, 2015 and 2014, respectively
Common stock, $0.0001 par value: 750,000 and 82,000 shares authorized at December 31, 2015 and December 31, 2014, respectively, 50,346 and 6,879 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively	$ 5	$ 1
Additional paid in capital	436,259	8,664
Notes receivable from officers		(192)
Accumulated deficit	(250,083)	(179,808)
Accumulated other comprehensive loss	(1,416)
Total stockholders’ equity (deficit)	184,765	(171,335)
Total liabilities, convertible preferred stock, and stockholders’ equity	$ 265,240	$ 123,623

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Consolidated Balance Sheets
Allowances on accounts receivable	$ 971	$ 527
Convertible preferred stock, par value (in dollars per share)		$ 0.0001
Convertible preferred stock, shares authorized		51,233,000
Convertible preferred stock, shares issued		31,397,000
Convertible preferred stock, shares outstanding		31,397,000
Convertible preferred stock, liquidation preference (in dollars)		$ 133,757
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	50,000,000	50,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	750,000,000	82,000,000
Common stock, shares issued	50,346,000	6,879,000
Common stock, shares outstanding	50,346,000	6,879,000

XML

Consolidated Statements of Operations and Comprehensive Loss - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Revenues
Product revenues	$ 188,168	$ 157,308	$ 54,955
Other revenues	2,187	1,981	216
Total revenues	190,355	159,289	55,171
Cost and expenses
Cost of product revenues	112,845	78,396	37,275
Research and development	27,711	17,292	11,550
Selling, general and administrative	109,637	62,936	31,614
Total cost and expenses	250,193	158,624	80,439
Gain (loss) from operations	(59,838)	665	(25,268)
Interest Expense	(3,505)	(4,219)	(1,873)
Interest expense from accretion of convertible notes			(7,901)
Interest benefit (expense) from changes in the fair value of long term debt	964	118	(2,166)
Other (expense) income, net	(7,896)	(1,716)	98
Net (loss)	(70,275)	(5,152)	(37,110)
Unrealized loss on available-for-sale securities, net of tax	(1,416)
Comprehensive (loss)	$ (71,691)	$ (5,152)	$ (37,110)
Basic and diluted net loss per share (in dollars per share)	$ (2.68)	$ (1.07)	$ (9.66)
Weighted-average number of shares used in computing basic and diluted net loss per share:	26,204	4,800	3,841

XML

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) - USD ($) shares in Thousands	Preferred Stock Convertible preferred stock	Preferred Stock C and D	Preferred Stock E	Preferred Stock F	Common stock	Additional Paid-in Capital	Notes Receivable from Officers	Accumulated Other Comprehensive Income (Loss)	Accumulated Deficit	Convertible preferred stock	E	F	Total
Balance at Dec. 31, 2012	$ 10,516,000				$ 1,000	$ 1,422,000	$ (192,000)		$ (137,546,000)				$ (136,315,000)
Balance (in shares) at Dec. 31, 2012					5,849
Convertible Preferred Stock Balance (in shares) at Dec. 31, 2012	11,572
Issuance of convertible preferred stock		$ 139,664,000	$ 35,019,000
Issuance of convertible preferred stock (in shares)		9,592	5,884
Issuance of common stock upon exercise of stock options	$ 0				$ 0	259,000	0	$ 0	0				259,000
Issuance of common stock upon exercise of stock options (in shares)	0				712
Stock based compensation						1,657,000							1,657,000
Issuance costs of Series F Preferred Stock											$ (405,371)
Net loss									(37,110,000)				(37,110,000)
Balance at Dec. 31, 2013	$ 185,199,000				$ 1,000	3,338,000	(192,000)		(174,656,000)				(171,509,000)
Balance (in shares) at Dec. 31, 2013					6,561
Convertible preferred stock balance (in shares) at Dec. 31, 2013	27,048
Issuance of convertible preferred stock				$ 55,413,000
Issuance of convertible preferred stock (in shares)				4,349
Issuance of common stock upon exercise of stock options	$ 0				$ 0	169,000	0	0	0				169,000
Issuance of common stock upon exercise of stock options (in shares)	0				318
Stock based compensation						5,157,000							5,157,000
Issuance costs of Series F Preferred Stock												$ (86,933)
Net loss									(5,152,000)				(5,152,000)
Balance at Dec. 31, 2014	$ 240,612,000				$ 1,000	8,664,000	(192,000)		(179,808,000)				$ (171,335,000)
Balance (in shares) at Dec. 31, 2014					6,879								6,879
Convertible preferred stock balance at Dec. 31, 2014										$ 240,612,000	$ 35,019,000	$ 55,413,000	$ 240,612,000
Convertible preferred stock balance (in shares) at Dec. 31, 2014	31,397												31,397
Issuance of common stock upon exercise of stock options						1,258,000							$ 1,258,000
Issuance of common stock upon exercise of stock options (in shares)					1,170
Stock based compensation						7,326,000							7,326,000
Issuance costs of Series F Preferred Stock				$ (27,000)
Officer loan receivable repayment							$ 192,000						192,000
Issuance of common stock in connection with the initial public offering					$ 1,000	182,465,000							182,466,000
Issuance of common stock in connection with the initial public offering (in shares)					10,900
Issuance costs of Initial Public Offering						(4,036,000)							(4,036,000)
Conversion of all Preferred Stock into Common Stock upon the completion of the initial public offering	$ (240,585,000)				$ 3,000	240,582,000							240,585,000
Conversion of all Preferred Stock into Common Stock upon the completion of the initial public offering (in shares)	(31,397)				31,397
Net loss									(70,275,000)				(70,275,000)
Accumulated other comprehensive income (loss)								(1,416,000)					(1,416,000)
Balance at Dec. 31, 2015					$ 5,000	$ 436,259,000		$ (1,416,000)	$ (250,083,000)				$ 184,765,000
Balance (in shares) at Dec. 31, 2015					50,346								50,346

XML

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Parenthetical) - USD ($)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
E
Preferred stock (in dollars per share)	$ 6.0199	$ 6.02
Preferred stock issuance costs		$ 405,371
F
Preferred stock (in dollars per share)	$ 12.7629
Preferred stock issuance costs	$ 86,933

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Operating Activities
Net loss	$ (70,275)	$ (5,152)	$ (37,110)
Adjustments to reconcile net loss to net cash used in operating activities:
Accretion of convertible notes			7,901
Non-cash interest			15
Depreciation and amortization	5,535	5,148	2,528
Amortization of debt discount	28
Amortization of premium on investment securities	288
Loss (gain) on sales of property and equipment	(2)	11
Impairment of assets	1,557
Stock based compensation	7,326	5,157	1,657
(Gain)/loss from changes in fair value of warrants	1,481	1,664	(52)
(Gain)/loss from change in fair value of long term debt	(964)	(118)	2,166
Provision for doubtful accounts	529	349	527
Loss on debt extinguishment	7,313
Changes in operating assets and liabilities
Accounts receivable	(450)	341	(5,848)
Inventory	2,929	(890)	(9,054)
Prepaid expenses and other current assets	(3,797)	(137)	(820)
Restricted cash	(273)
Other assets	(1,041)	(24)	(63)
Accounts payable	1,354	(2,430)	6,792
Income taxes payable		(15)
Accrued compensation	2,572	2,994	1,658
Other accrued liabilities	8,026	4,450	4,702
Deferred revenue	32	(858)	869
Net cash (used in) provided by operating activities	(37,832)	10,490	(24,132)
Investing Activities
Purchases of investments	(203,290)
Proceeds from sale of property and equipment	463	15
Purchases of property and equipment, net	(7,852)	(9,957)	(8,245)
Net cash (used in) investing activities	(210,679)	(9,942)	(8,245)
Financing Activities
Proceeds from issuance of common stock, net of issuance costs	180,001	170	259
Proceeds from exercise of stock options	1,258
Bridge loan			2,000
Proceeds from issuance of preferred stock, net		55,413	33,019
Proceeds from senior secured term loan			20,000
Costs paid for loan	(6)		(479)
Proceeds from short-term financing	42,000
Proceeds from equipment financing		5,105	3,700
Repayments of equipment financing	(5,850)	(2,480)	(475)
Repayments of secured financings	(20,000)
Proceeds from collection of officer receivable	192
Payment to lender for debt extinguishment	(7,313)
Change in restricted cash		(415)	(881)
Deferred offering costs		(1,661)	(17)
Net cash provided by financing activities	190,282	56,132	57,126
Net (decrease) increase in cash	(58,229)	56,680	24,749
Cash at beginning of period	87,176	30,496	5,747
Cash at end of period	28,947	87,176	30,496
Supplemental disclosure of cash flow information:
Cash paid for interest	2,060	2,063	920
Purchases of property and equipment through accounts payable and accruals	765	$ 3,223	2,942
Non cash property and equipment purchase	2
Conversion of convertible preferred stock to common stock	$ 240,585
C and D
Supplemental disclosure of cash flow information:
Conversion of Debt			139,664
Bridge loan
Supplemental disclosure of cash flow information:
Conversion of Debt			$ 2,002

XML

Description of Business

12 Months Ended

Dec. 31, 2015

Description of Business

Description of Business

1. Description of Business

Natera, Inc. (the "Company") was formed in the state of California as Gene Security Network, LLC in November 2003 and incorporated in the state of Delaware in January 2007. The Company’s mission is to change the management of genetic disease worldwide. The Company operates a laboratory certified under the Clinical Laboratory Improvement Amendments ("CLIA") providing a host of preconception and prenatal genetic testing services. The Company operates in one segment and has a subsidiary that operates in the state of Texas.

The Company's product offerings include its Panorama Non-Invasive Prenatal Test ("NIPT") that screens for chromosomal abnormalities of a fetus typically with a blood draw from the mother; Horizon Carrier Screening ("Horizon") to determine carrier status for a large number of severe genetic diseases that could be passed on to the carrier’s children; Spectrum Pre-implantation Genetic Screening ("PGS") and Spectrum Pre-implantation Genetic Diagnosis ("PGD") to analyze chromosomal anomalies or inherited genetic conditions during an in vitro fertilization ("IVF") cycle to select embryos with the highest probability of becoming healthy children; Anora Products of Conception ("POC") test to rapidly and extensively analyze fetal chromosomes to understand the cause of miscarriage; Non-Invasive Paternity Testing ("PAT"), to determine paternity by analyzing the fragments of fetal deoxyribonucleic acid ("DNA") in a pregnant mother's blood and a blood sample from the alleged father(s), which is marketed and sold exclusively by a licensee from whom the Company receives a royalty. All testing is available principally in the United States and Europe. The Company also offers Constellation, a cloud-based software product that allows laboratory customers to gain access through the cloud to the Company’s algorithms and bioinformatics in order to validate and launch tests based on the Company’s technology.

Reverse Stock Split

The Company's board of directors and stockholders approved a 1-for-1.63 reverse split of its capital stock, which was effected on June 19, 2015. All references to common stock, options to purchase common stock, restricted stock, share data, per share data, warrants, convertible preferred stock and related information have been retroactively adjusted where applicable in this report to reflect the reverse stock split of the Company's capital stock as if it had occurred at the beginning of the earliest period presented.

Initial Public Offering

In July 2015, the Company completed an initial public offering (“IPO”), and subsequently in August 2015, the Company completed the sale of additional shares upon exercise of the underwriters’ over-allotment option. In connection with the IPO, including the over-allotment option, the Company sold 10,900,000shares of common stock at $18.00 per share, which raised $178.5 million in proceeds, net of underwriting discounts and commissions and offering expenses.

XML

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2015

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2.    Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). .

Need to Raise Additional Capital

The Company has incurred net losses since its inception and anticipates net losses and negative operating cash flows for the near future. For the year ended December 31, 2015, the Company had a net loss of $70.3 million, and as of December 31, 2015, it had an accumulated deficit of $250.1million. At December 31, 2015, the Company had $28.9 million in cash and cash equivalents and $201.6 million in marketable securities. While the Company has introduced multiple products that are generating revenues, these revenues have not been sufficient to fund all operations. Accordingly, the Company has funded the portion of operating costs that exceeds revenues through a combination of equity issuances, debt issuances, and other financings. The Company expects to develop and commercialize future products and, consequently, it will need to generate additional revenues to achieve future profitability and may need to raise additional equity or debt financing that may not be available, if at all, at terms acceptable to the Company to fund future operations.Based on our current business plan, we believe that our existing cash and marketable securities will be sufficient to meet our anticipated cash requirements for the next 12 months.

Principles of Consolidation

The accompanying condensed consolidated financial statements include all the accounts of the Company and its subsidiary. The Company established a subsidiary that operates in the state of Texas in December 2014 to support the Company’s laboratory and operational functions, which became active in the second quarter of 2015. All intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions about future events that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Significant items subject to such estimates include the allowance for doubtful accounts, accrued liability for potential refund requests, stock-based compensation, the fair value of common stock and fair value of debt accounted for under ASC 815, as well as income tax uncertainties. These estimates and assumptions are based on management's best estimates and judgment. Management regularly evaluates its estimates and assumptions using historical experience and other factors; however, actual results could differ from these estimates and could have an adverse effect on the Company's financial statements.

Fair Value

The Company discloses the fair value of financial instruments for financial assets and liabilities for which the value is practicable to estimate. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company carried senior secured term loan and warrants at fair value according to the fair value measurement guidance.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and money market deposits with financial institutions.

Restricted Cash

The Company discloses both short-term and long-term restricted cash.  Short-term restricted cash consists of $0.8 million, securing our letter of credit for our headquarters operating lease which expires in October 2016 and $0.1 million in payments received by certain customers.  Long-term restricted cash consists of $0.4 million deposit per credit card terms and $0.3 million securing our letter of credit for our headquarters operating lease which expires in January 2017.

Investments

Management determines the appropriate classification of securities at the time of purchase and reevaluates such determination at each balance sheet date. The Company generally classifies its entire investment portfolio as available-for-sale. The Company views its available-for-sale portfolio as available for use in current operations. Accordingly, the Company classifies all investments as short-term, even though the stated maturity may be more than one year from the current balance sheet date. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), which is a separate component of stockholders’ equity (deficit).

Risk and Uncertainties

Financial instruments that potentially subject the Company to credit risk consist of cash, accounts receivable and investments. The Company limits its exposure to credit loss by placing its cash in financial institutions with high credit ratings. The Company's cash may consist of deposits held with banks that may at times exceed federally insured limits. The Company performs evaluations of the relative credit standing of these financial institutions and limits the amount of credit exposure with any one institution.

The Company bills third-party payers for certain tests performed. The amount that is ultimately received from the payer for our claim and the timing of such payments are subject to the determination of the payer based on the nature of the test performed and their view of our business practices with respect to collections of plan deductibles and co-payments from patients and other activities. This determination can impact both the amount and timing of when our invoices are collected. Payers may also withhold payments and request refunds of prior payments if we do not perform in accordance with the policies of these payers.

The Company performs evaluations of financial conditions for clinics and laboratory partners and generally does not require collateral to support credit sales. For 2015 and 2014, there were no customers exceeding 10% in total revenue. For 2013, two customers accounted for more than 10% of our revenues: Quest Diagnostics Incorporated (16%) and Progenity, Inc. (12%). As of December 31, 2015 and 2014, no customers had a receivable balance greater than 10% of net accounts receivable, and as of December 31, 2013, two customers had receivable balances of 37%  and 18% of total accounts receivable.

Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the amount billed to the laboratory partners and clinics. Reducing this amount is an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make the contracted payments. Management analyzes accounts receivable and historical bad debt experience, customer creditworthiness, current economic trends, and changes in customer payment history when evaluating the adequacy of the allowance for doubtful accounts. Accounts receivable are written off against the allowance when there is substantive evidence that the account will not be paid.

Revenue Recognition

The Company generally bills an insurance carrier, a clinic or a patient for the test upon delivery of the test result. The Company also bills patients directly for out-of-pocket costs not covered by their insurance carriers representing co-pays and deductibles in accordance with their insurance carrier and health plans. The Company may not get reimbursed for tests completed if the tests are not covered under the insurance carrier’s reimbursement policies or the Company is not a qualified provider to the insurance carrier. For tests performed, where an agreed upon reimbursement rate or fixed fee and a predictable history or likelihood of collections exists, the Company recognizes revenues upon delivery of the test report to the prescribing physician based on the established billing rate less contractual and other adjustments, such as an allowance for doubtful accounts, to arrive at the amount that the Company expects to collect. In all other situations, as the Company does not have a sufficient history of collection and is not able to determine collectability, the Company recognizes revenues when cash is received. From time to time, we receive requests for refunds of payments previously made by insurance carriers. The Company has established an accrued liability for potential refund requests based on our experience.

In cases where the Company sells its tests through its laboratory partners, the majority of the laboratory partners bill the patient, clinic, or insurance carrier for the performance of the Company's tests.

For tests sold through a limited number of its laboratory partners, the Company bills directly to a patient, clinic or insurance carrier, or a combination of the insurance carrier and patient for the fees. The Company considers its services rendered when it delivers reports of its test results to the laboratory partner, clinic or patient. When the Company has contracted fixed rates for its services and collectability of its revenues is reasonably assured, it recognizes revenues upon delivery of test reports. The fixed fees identified in contracts with laboratory partners change only if a pricing amendment is agreed upon between both parties. For cases in which there is no fixed price established with a laboratory partner, the Company then recognizes revenues from partner distributed tests on a cash basis.

Certain of the Company's arrangements include multiple deliverables. For revenue arrangements with multiple deliverables, the Company evaluates each deliverable to determine whether it qualifies as a separate unit of accounting. This determination is based on whether the deliverable has "stand-alone value" to the customer and whether a general right of return exists. The consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling price of each deliverable. The consideration allocated to each unit of accounting is recognized as the related goods or services are delivered, limited to the consideration that is not contingent upon future deliverables. The Company uses judgment in identifying the deliverables in its arrangements, assessing whether each deliverable is a separate unit of accounting, and in determining the best estimate of selling price for certain deliverables. The Company also uses judgment in determining the period over which the deliverables are recognized in certain of its arrangements. Any amounts received that do not meet the criteria for revenue recognition are recorded as deferred revenue until such criteria are met.

The Company receives royalty revenue through the licensing and the provisioning of services to support the use of the Company's proprietary technology with its customer. Royalty revenues are recognized when earned under the terms of the related agreements and are included in Other Revenues in the statements of operations.

The Company recognizes revenue from the cloud-based distribution service offering. The Company grants customers licenses to use the Company’s proprietary intellectual properties and the cloud-based Natera software, and provides the other services to support the use of the Company's proprietary technology with its customers. Natera’s proprietary software is used in connection with the analysis of DNA sequence data in a manner yielding a result indicating the likely presence or absence of full or partial chromosomal abnormalities. The licensees do not have the right to possess Natera software, but rather are treated as software as a service. The revenues are recognized on an accrual basis (assuming all revenue recognition criteria are met) under the terms of the related agreements and are included in other revenues in the statements of operation.

Cost of Product Revenues

Cost of product revenues includes the cost of materials, direct labor of laboratory personnel, equipment and infrastructure expenses associated with processing blood and other samples, quality control analyses, and shipping charges to transport samples and specimens from ordering physicians, clinics or individuals. Infrastructure expenses include allocated facility and related occupancy costs. Costs associated with the performance of diagnostic services are recorded as tests are processed. Costs associated with grants received are reported in research and development expenses.

Research and Development

The Company records research and development costs in the period incurred. Research and development costs consist of personnel costs, contract services, cost of materials utilized in performing tests, costs of clinical trials and allocated facilities and related overhead expenses.

Advertising Costs

The Company expenses advertising costs as incurred. The Company incurred advertising costs of $1.1 million, $1.1 million and $0.4 million during 2015, 2014 and 2013, respectively.

Product Shipment Costs

The Company expenses product shipment costs in cost of product revenues in the accompanying statements of operations. Shipping and handling costs for the years ended December 31, 2015, 2014 and 2013 were $7.0 million, $4.5 million and $2.0 million, respectively.

Income Taxes

Income taxes are recorded in accordance with Financial Accounting Standards Board ASC Topic 740, Income Taxes ("ASC 740"), which provides for deferred taxes using an asset and liability approach. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Tax benefits are recognized when it is more likely than not that a tax position will be sustained during an audit. Deferred tax assets are reduced by a valuation allowance if current evidence indicates that it is considered more likely than not that these benefits will not be realized.

Stock‑Based Compensation

Stock‑based compensation related to stock options granted to the Company’s employees is measured at the grant date based on the fair value of the award. The fair value is recognized as expense over the requisite service period, which is generally the vesting period of the respective awards. No compensation cost is recognized on stock options for employees who do not render the requisite service and therefore forfeit their rights to the stock options. The Company uses the Black‑Scholes option‑pricing model to estimate the fair value of its stock options.

The Company accounts for stock options issued to non-employees based on the estimated fair value of the awards using the Black-Scholes option-pricing model. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest, and the resulting change in value, if any, is recognized in the Company's statements of operations during the period that the related services are rendered.

The Black-Scholes option-pricing model requires the input of the Company's expected stock price volatility, the expected life of the awards, a risk-free interest rate, and expected dividends. Determining these assumptions requires significant judgment. The expected term was based on the simplified method and where the Company did not qualify to use the simplified method, the Company used the lattice model, and the volatility rate was based on that of publicly traded companies in the DNA sequencing, diagnostics, or personalized medicine industries. When selecting the public companies in these industries to be used in the volatility calculation, companies were selected with comparable characteristics to the Company, including enterprise value and financial leverage. Companies were also selected with historical share price volatility sufficient to meet the expected life of the Company's stock options. The historical volatility data was computed using the daily closing prices for the selected companies' shares during the equivalent period of the calculated expected term of the Company's stock options. The expected life of the non-employee option grants was based on their remaining contractual life at the measurement date. The risk-free interest rate assumption was based on U.S. Treasury instruments with maturities that were consistent with the option's expected life. The expected dividend assumption was based on the Company's history and expectation of dividend payouts.

Warrants

The Company accounts for warrants to purchase shares of its common stock as a liability at fair value on the balance sheet date because the Company may be obligated to redeem these warrants at some point in the future. The warrants are subject to remeasurement at each balance sheet date, with changes in fair value recognized as a gain or loss from the changes in fair value of the warrants in the statements of operations. The Company will continue to adjust the liability for changes in fair value until such time that the warrants are converted or expire.

Capitalized Software Held for Internal Use

We capitalize costs of software held for internal use during the application development stage of a project and amortize those costs over their estimated useful lives of three years. The net book value of capitalized software held for internal use was $0.8 million and $0 as of December 31, 2015 and 2014, respectively.Amortized expense for amounts previously capitalized for the year ended December 31, 2015 was $0.2 million.

Accumulated Other Comprehensive Loss

Comprehensive loss and its components encompass all changes in equity other than those with stockholders, and include net loss, unrealized gains and losses on available-for-sale marketable securities. As of December 31, 2015 and 2014, accumulated other comprehensive loss consisted of $1.4 million and nil of unrealized losses on available-for-sale marketable securities. There were no reclassifications out of accumulated other comprehensive loss during years ended December 31, 2015 and 2014.

Property and Equipment

Property and equipment, including purchased and internally developed software, are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which are generally three years. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the assets or the remaining term of the lease, whichever is shorter. The Company periodically reviews the depreciable lives assigned to property and equipment placed in service and change the estimates of useful lives to reflect the results of such reviews. During April 2015, the Company increased the depreciable lives of certain sequencing and automation machinery equipment from three years to five years. The effect of this change in estimate for the year ended December 31, 2015 was a decrease in loss from operations and net loss of  $1.7 million, respectively. The effect of this change in estimate was a decrease in net basic and diluted loss per share of $0.07 for the year ended December 31, 2015.

Inventory

Inventory is valued at the lower of the standard cost, which approximates actual cost, or market. Cost is determined using the first-in, first-out ("FIFO") method. Inventory consisted entirely of supplies, which are consumed when providing its test reports, and therefore does not maintain any finished goods inventory. The Company enters into inventory purchases and commitments so that it can meet future delivery schedules based on forecasted demand for its tests.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed below, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

In August 2014, FASB issued Accounting Standards Update No. 2014‑15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014‑15). ASU 2014‑15 requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. In doing so, companies will have reduced diversity in the timing and content of footnote disclosures compared to footnote disclosures under today’s guidance. ASU 2014‑15 is effective for the Company in the first quarter of 2016 with early adoption permitted. The Company does not believe the impact of adopting ASU 2014‑15 on its financial statements will be significant.

In May 2014, FASB issued Accounting Standards Update No. 2014‑09, Revenue from Contracts with Customers (ASU 2014‑09) to provide guidance on revenue recognition. ASU 2014‑09 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09 for all entities by one year. ASU 2014-09 is effective for the Company in the first quarter of 2018. ASU 2014-09, as amended by ASU 2015-14, is effective for the Company in the fiscal year beginning after December 15, 2017, and interim periods within those years with early adoption permitted up to the first quarter of 2017. Upon adoption, ASU 2014‑09 can be applied retrospectively to all periods presented or only to the most current period presented with the cumulative effect of changes reflected in the opening balance of retained earnings in the most current period presented. The Company is currently evaluating the impact of adopting ASU 2014‑09 on its financial statements.

In April 2015, FASB issued Accounting Standards Update No. 2015‑03, Interest—Imputation of Interest (Subtopic 835‑30): Simplifying the Presentation of Debt Issuance Costs (ASU 2015‑03). ASU 2015‑03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015‑03 is effective for the Company in the first quarter of 2016 with early adoption permitted. The Company does not believe the impact of adopting ASU 2015‑03 on its financial statements will be significant.

In April 2015, FASB issued Accounting Standards Update No. 2015‑05, Intangibles—Goodwill and Other—Internal‑Use Software (Subtopic 350‑40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (ASU 2015‑05). ASU 2015‑05 provides guidance to clarify the customer’s accounting for fees paid in a cloud computing arrangement. ASU 2015‑05 is effective for the Company in the first quarter of 2016 with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2015‑05 on its financial statements.

In July 2015, FASB issued Accounting Standards Update No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (ASU 2015-11). ASU 2015-11 simplifies the subsequent measurement of inventory by replacing today’s lower of cost or market test with a lower of cost and net realizable value test. ASU 2015-11 is effective for the Company in the fiscal year beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2015‑11 on its financial statements.

In November 2015, FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred taxes by requiring that deferred tax assets and liabilities be presented as noncurrent on the balance sheet. ASU 2015-17 is effective for the Company in the fiscal year beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2015‑17 on its financial statements.

In February 2016, the FASB issued ASU No. 2016-2, Leases. ASU 2016-2 is aimed at making leasing activities more transparent and comparable, and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. ASU 2016-2 is effective for the Company in the fiscal year beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2016-2 on its financial statements.

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Fair Value Measurements

12 Months Ended

Dec. 31, 2015

Fair Value Measurements

Fair Value Measurements

3.   Fair Value Measurements

The Company's financial assets and liabilities carried at fair value are comprised of investment assets that include money market and investments, a liability for convertible preferred stock warrants and a liability for common stock warrants.  The Company’s Credit Line described in Note 8, is not measured at fair value on a recurring basis and is carried at amortized cost. The Company believes that the fair value of the Credit Line approximates its carrying value or amortized costs, due to the short-term nature of this obligation and the interest rate relative to market rates.

The fair value accounting guidance requires that assets and liabilities be carried at fair value and classified in one of the following three categories:

Level I: Quoted prices in active markets for identical assets and liabilities that the Company has the ability to access

Level II: Observable market‑based inputs or unobservable inputs that are corroborated by market data, such as quoted prices, interest rates, and yield curves

Level III: Inputs that are unobservable data points that are not corroborated by market data.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. There were notransfersbetweenLevel I, Level II and Level IIIduringtheperiods presented.

Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis

The following table represents the fair value hierarchy for the Company’s financial assets and financial liabilities measured at fair value on a recurring basis:

	December 31, 2015								December 31, 2014
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
	(in thousands)
Financial Assets:
Money market deposits	$	5,966	$	—	$	—	$	5,966	$	—	$	—	$	—	$	—
U.S. Treasury securities		103,813		—		—		103,813		—		—		—		—
U.S. agency securities		—		78,853		—		78,853		—		—		—		—
Municipal securities		—		18,920		—		18,920
Total financial assets	$	109,779	$	97,773	$	—	$	207,552	$	—	$	—	$	—	$	—
Current Liabilities:
Warrants	$	—	$	—	$	3,649	$	3,649	$	—	$	—	$	2,232	$	2,232
Long-term Liabilities:
Senior secured term loan	$	—	$	—	$	—	$	—	$	—	$	—	$	20,964	$	20,964
Total financial liabilities	$	—	$	—	$	3,649	$	3,649	$	—	$	—	$	23,196	$	23,196

The Company's warrants to purchase common stock are valued using Level III inputs; the Company used inputs from a Black-Scholes model with market volatility that is determined for comparable companies in the same business sector. The carrying amounts of cash, accounts receivable, and accounts payable approximate their fair value and are excluded from the table above.

In April 2013, the Company entered into a senior secured term loan with a third‑party lender, which consisted of a credit agreement, royalty agreement, warrants, and loan commitment. The Company considered the guidance under ASC 825‑10, Financial Instruments, which provides a measurement basis election for most financial instruments (i.e., either historical cost or fair value), allowing reporting entities to mitigate potential mismatches that arise under the current mixed measurement attribute model and ASC 820, Fair Value Measurements and Disclosures that provides for the fair value measurement of assets and liabilities, except for derivatives, for which the fair value is determined by ASC 815, Derivatives and Hedging.

The Company evaluated the components of the senior secured term loan and determined that they were derivatives to be evaluated under ASC 815‑15‑25‑1. The fair value accounting for derivatives is not an option, as derivatives must be fair valued under ASC 815 following the measurement guidance under ASC 820. Therefore, the Company engaged a third party to determine the fair value of the derivatives using the guidance of ASC 820 and recorded the Senior Secured Term Loan at fair value.

ASC 815 requires the terms and features of an instrument that are not a derivative itself to be evaluated for embedded derivatives that must be bifurcated and separately accounted for as freestanding derivatives. In general, under ASC 815‑15‑25‑1, an embedded derivative is separated from the host contract and accounted for as a derivative instrument if and only if the following criteria are met:

· Economic characteristics/risks of the derivative are not clearly and closely related to host;

· The hybrid instrument is not re‑measured at fair value under other applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur;

· A separate instrument with the same terms would be considered a derivative: (i) one or more underlying, (ii) One or more notional amounts, (iii) no or minimal initial net investment, (iv) net settlement.

Based upon the Company's evaluation, the senior secured term loan constituted a liability with embedded derivative features that must be accounted for separately as mark-to-market instruments. In addition, adjustments to the embedded royalty feature were recorded as interest expense as they occurred, offset to the carrying amount of the debt (with the eventual cash outlay to settle such amounts recorded against the carrying amount of the debt). Based on the Company's evaluation, it was determined that the warrants granted were detachable and therefore a stand-alone component of the senior secured term loan which was to be fair valued using Level III inputs as a separate derivative. Additionally, it was determined that the remaining components were embedded derivatives of the senior secured term loan, which required a fair value assessment using Level III inputs at the end of each reporting period. The Company's independent appraiser assisted in the evaluation of the components of the senior secured term loan that required significant judgment or estimation. The fair value of the components were calculated using various techniques such as (i) discounted future cash flows, (ii) the income approach, using various revenue assumptions and applying a Monte-Carlo Simulation to each outcome and (iii) Black-Scholes Option Pricing Model with market volatility that was determined by comparison to comparable companies in the same business sector. The fair value of the senior secured term loan was re-measured at the end of each reporting period with the change in fair value recorded within non-operating expense in the statements of operations until it was repaid in October 2015.

The following table provides a roll forward of the fair value, as determined by Level III inputs, of the warrants for the years ended December 31, 2015 and 2014:

	Warrants
	2015		2014
	(in thousands)
Beginning balance	$	2,232	$	568
Warrants exercised		(240)		—
Change in fair value		1,657		1,664
Ending balance	$	3,649	$	2,232

The following table provides a roll forward of the fair value, as determined by Level III inputs, of the senior secured term loan for the years ended December 31, 2015 and 2014:

	Term Loan
	2015		2014
	(in thousands)
Beginning balance	$	20,964	$	21,082
Change in fair value recognized in non-operating expense		(964)		(118)
Loan payment		(20,000)		—
Ending balance	$	—	$	20,964

The early payment of the senior secured term loan included a prepayment penalty of $2.0 million and $5.3 million royalty payoff.

The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurement classified in Level III of the fair value hierarchy at December 31, 2015.

					Weighted Average
					Interest on
	Fair Value at			Significant	Discount Rate
	December 31, 2015		Valuation Methodology	Unobservable Input	(range, if applicable)
	(in thousands)				(in thousands)
—Warrants	$	3,649	Black-Scholes Option Pricing Model	Volatility		79.6	%

Senior Secured Term Loan

The fair value of the liability represented a term loan, royalty interest, and a loan commitment that was based upon the achievement of certain revenue targets over the life of the contract. The fair value of the liability was determined using discounted cash flow methodology, a Monte Carlo Simulation model for projected revenues, and the Longstaff-Schwartz model for royalty payments with significant inputs that include discount rate, projected revenues, projected royalty payments and percentage probability of occurrence for projected revenues and royalty payments.

Warrants

The significant unobservable inputs used in the fair value of warrants are derived from the Company's common stock valuation that is based upon a model with inputs from a Black-Scholes model and market volatility that is determined for comparable companies in the same business sector. The inherent risk in the market volatility is the selection of companies with similar business attributes to the Company. The Company changed the volatility assumption from a group of 15 companies that was shared with the secured debt volatility prior periods to a group of four companies that is shared with the volatility used for stock-based compensation expense.  The Company determined this was appropriate as the secured debt was settled in October 2015 and results in consistent volatility assumptions used for both common stock warrants and stock-based compensation. This resulted in an increase of the Company’s warrant valuation of $0.2 million on December 31, 2015.

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Financial Instruments

12 Months Ended

Dec. 31, 2015

Financial Instruments

Financial Instruments

4.Financial Instruments

The Company elected to invest a portion of its cash assets in conservative, income earning, liquid investments effective September 2015. Cash equivalents and investments, all of which are classified as available-for-sale securities, consisted of the following:

	December 31, 2015								December 31, 2014
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized (Loss)		Estimated Fair Value		Amortized Cost		Gross Unrealized Gain		Gross Unrealized (Loss)		Estimated Fair Value
	(in thousands)
Money market deposits	$	5,966	$	—	$	—	$	5,966	$	—	$	—	$	—	$	—
U.S. Treasury securities		104,537		1		(725)		103,813		—		—		—		—
U.S. agency securities		79,491		—		(638)		78,853		—		—		—		—
Municipal securities		18,974		2		(56)		18,920
Total	$	208,968	$	3	$	(1,419)	$	207,552	$	—	$	—	$	—	$	—
Classified as:
Cash equivalents							$	5,966							$	—
Short-term investments								201,586								—
Total							$	207,552							$	—

The Company invests in U.S. Treasuries, U.S. agency and high quality municipal bonds which mature at par and are all paying their coupons on schedule.  Thus the Company has determined there is currently no other than temporary impairment of our investments, and will continue to recognize unrealized losses and gains in other comprehensive income. As of December 31, 2015, the Company has 73 investments in an unrealized loss position in its portfolio. The Company earned interest income of $0.3 million during the year ended December 31, 2015. The following table summarizes the Company’s portfolio of available-for-sale securities by contractual maturity as of December 31, 2015:

	December 31, 2015
	Amortized Cost		Fair Value
	(in thousands)
Less than one year	$	55,128	$	55,010
Greater than one year but less than five years		153,840		152,542
Total	$	208,968	$	207,552

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Balance Sheet Components

12 Months Ended

Dec. 31, 2015

Balance Sheet Components

Balance Sheet Components

5. Balance Sheet Components

Allowance for Doubtful Accounts

The following table presents a reconciliation of the allowance for doubtful accounts:

	December 31,		December 31,
	2015		2014
	(in thousands)
Beginning balance	$	527	$	508
Provision for estimated bad debts		529		349
Write offs		(85)		(330)
Ending balance	$	971	$	527

Property and Equipment, net

The Company’s property and equipment consisted of the following:

		December 31,		December 31,
	Useful Life	2015		2014
		(in thousands)
Machinery and equipment	3-5 years	$	20,670	$	18,632
Furniture and fixtures	3 years		217		217
Computer equipment	3 years		911		700
Capitalized software held for internal use	3 years		1,037		—
Leasehold improvements	Life of lease		1,686		1,036
Construction-in-process			1,979		3,583
			26,500		24,168
Less: Accumulated depreciation and amortization			(13,790)		(9,594)
Total Property and Equipment, net		$	12,710	$	14,574

All of the Company’s long-lived assets are located in the United States.

In September 2015, the Company paid off the Equipment Financing Facility, thus none of the Company's equipment is subject to pledge.

The Company periodically evaluates the carrying value of long-lived assets when events or circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the estimated realizable value of the asset is less than the carrying value of the asset.  In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset.  Fair value is determined based on the estimated realizable value of the long-lived asset.

The Company recorded an asset impairment charge of $1.0 million against a specific group of machinery and equipment during the year ended December 31, 2015. The Company no longer uses this specific group of machinery and equipment because of outsourcing to its partners. The impairment charge was recorded to reflect reductions in the estimated realizable value of the machinery and equipment as a result of planning for its sale in the secondary market. The Company recorded the total impairment charge of $1.0 million in cost of product revenue.  The Company sold some of the impaired machinery and equipment during the fourth quarter of 2015 for $0.5 million and classified the remaining impaired machinery and equipment as held for sale at the estimated realizable value of $0.2 million. The remaining impaired machinery was sold in January 2016 for $0.2 million.

Accrued Compensation

The Company’s accrued compensation consisted of the following:

	December 31,		December 31,
	2015		2014
	(in thousands)
Accrued paid time off	$	2,024	$	1,577
Accrued commissions		3,691		2,651
Accrued bonuses		1,348		1,141
Other accrued compensation		1,489		611
Total accrued compensation	$	8,552	$	5,980

Other Accrued Liabilities

The Company’s other accrued liabilities consisted of the following:

	December 31,		December 31,
	2015		2014
	(in thousands)
Accrued expenses	$	17,870	$	8,560
Accrued rent		450		551
Deferred lease obligation		42		99
Accrued interest		—		764
Sales tax payable		346		367
Total other accrued liabilities	$	18,708	$	10,341

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2015

Commitments and Contingencies

Commitments and Contingencies

6.Commitments and Contingencies

Operating Leases

As of December 31, 2015, the Company sub‑leases office facilities under non‑cancelable operating lease agreements. In January 2013, the Company amended its sublease agreement to expand its corporate headquarters. In connection with the amendment, the Company executed a letter of credit in favor of the lessors for $0.8 million, which is secured with a restricted cash account. The related subleases expire in October 2016.

On March 21, 2014, the Company entered into an additional sub‑lease agreement to expand its corporate headquarters for additional office and laboratory space. In connection with the sub-lease, the Company executed a letter of credit in April 2015 in favor of the lessors for $0.3 million, which is secured with a restricted cash account. The lease and additional sub‑lease expire in January 2017.

In April 2015, the Company entered into a sub-lease agreement for additional office space in Redwood City, California. The additional space carries a base rent of $0.1 million per month. The lease period began in June 2015 and will terminate in August 2016 with no option to extend the lease. In addition, the Company paid a security deposit of $0.1 million.

In September 2015, the Company’s subsidiary entered into a long-term lease agreement for lab and office space in Austin, Texas. The lease term is 132 months beginning in December 2015 with monthly payments beginning in December 2016, increasing from $0.1 million to $0.2 million. Per the terms of the lease, the subsidiary has paid a security deposit of $0.4 million, and the agreement provides foran allowance for leasehold improvements of up to $7.8 million.

In October 2015, the Company’s subsidiary entered into a one year lease agreement for temporary office space in Austin, Texas. The property carries a monthly rent of $12,900 per month for the 12 months of the lease and $12,900 per month on a month to month basis following the 12th month. The terms of the lease include a $12,900 security deposit

In October 2015, the Company extended its corporate headquarters lease agreement for the lease of two spaces totaling approximately 88,000 square feet through October 5, 2023. Upon the expiree of the current lease,the lease agreement commences in October 2016 at a monthly rent of $0.2 million per month and increase each year thereafter to a maximum of $0.4 million in the final year of the initial term of the lease. The Company is entitled to a tenant improvement allowance of $0.4 million, to be expended prior to April 1, 2018, for the costs related to the design and construction of improvements to the facilities. The terms of the lease include a $0.5 million security deposit, and the option to extend the lease for an additional five years per the terms of the lease agreement.

The future annual minimum lease payments under all non-cancelable operating leases as of December 31, 2015 are as follows:

	Operating Leases
	(in thousands)
Year ending December 31:
2016	$	3,212
2017		5,442
2018		5,976
2019		6,140
2020		6,304
2021 and thereafter		25,922
Total future minimum lease payments	$	52,996

Rent expense for the years ended December 31, 2015, 2014 and 2013 was $2.7 million, $1.5 million and $1.3 million, respectively. The Company is also required to pay its share of facility operating expenses with respect to the facilities in which it operates.

Legal Proceedings

From time to time, the Company is involved in disputes, litigation, and other legal actions. The Company is aggressively defending its current litigation matters, and while there can be no assurances and the outcome of these matters is currently not determinable, the Company currently believes that there are no existing claims or proceedings that are likely to have a material adverse effect on its financial position. There are many uncertainties associated with any litigation and these actions or other third-party claims against the Company may cause the Company to incur costly litigation and/or substantial settlement charges.

In addition, the resolution of any intellectual property litigation may require the Company to make royalty payments, which could adversely affect gross margins in future periods. If this were to occur, the Company's business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from the Company's estimates, if any, which could result in the need to record or adjust a liability and record additional expenses. During the periods presented, the Company has not recorded any accrual for loss contingencies associated with such legal proceedings, determined that an unfavorable outcome is probable or reasonably possible, or determined that the amount or range of any possible loss is reasonably estimable.

On March 4, 2016, a lawsuit was filed against Natera in the Superior Court of the State of California for the County of San Diego, by a patient alleging that Natera failed to perform a test that was ordered. The complaint seeks unspecified damages. The Company has notified its insurer, who is providing a defense under a reservation of rights. The Company intends to vigorously defend against the claims in this lawsuit, and assert any counterclaims that may be available to it, but cannot provide any assurance as to the ultimate outcome or that an adverse resolution of this lawsuit would not have a material adverse effect on its financial condition and results of operations. In light of, among other things, the early stage of the litigation, the Company is unable to predict the outcome of this matter and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from an unfavorable outcome.

On February 17, 2016 and March 10, 2016,  twopurported class action lawsuits  were filed in the Superior Court of the State of California for the County of San Mateo, against Natera, its directors and certain of its officers and 5% stockholders and their affiliates, and each of the underwriters of its July 1, 2015 initial public offering (the "IPO"). The complaints  assert claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended. The complaints allege, among other things, that the Registration Statement and Prospectus for the Company’s IPO contained materially false or misleading statements, and/or omitted material information that was required to be disclosed, about the Company’s business and prospects. Among other relief, the complaints seek class certification, unspecified compensatory damages, rescission, attorneys' fees, and costs. The Company intends to defend the matter vigorously. The Company is still in the preliminary stages of reviewing the allegations made in the complaints, and cannot provide any assurance as to the ultimate outcome or that an adverse resolution would not have a material adverse effect on its financial condition and results of operations.In light of, among other things, the early stage of the litigations, the Company is unable to predict the outcome and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from any unfavorable outcome.

On January 6, 2012, the Company filed a declaratory judgment action in the U.S. District Court for the Northern District of California, alleging that U.S. Patent No. 6,258,540 licensed by Sequenom, Inc. ("Sequenom") from Isis Innovation Limited, Inc. ("Isis") (the '540 patent), is invalid, unenforceable and not infringed by the Company. The '540 patent relates to non-invasive prenatal diagnosis methods. This case was consolidated in the Northern District of California with a case that Sequenom, an affiliate of Sequenom, and Isis brought on January 24, 2012 in the Southern District of California alleging infringement by the Company and DNA Diagnostics Center, Inc., the Company's licensee, and at the time, the distributorof its non-invasive paternity test, of certain claims of the '540 patent. Ariosa Diagnostics, Inc. ("Ariosa") and Verinata Health, Inc. ("Verinata"), now a division of Illumina, Inc., also filed declaratory judgment actions regarding the '540 patent against Sequenom in the Northern District. Sequenom asserted counterclaims of infringement of the '540 patent against both Ariosa and Verinata in those respective cases. All of these cases were designated related cases. On October 30, 2013, the District Court issued an order granting Ariosa's motion for summary judgment in its case against Sequenom, finding that the claims asserted against Ariosa are invalid under 35 U.S.C. §101 for reciting non-patentable subject matter. Many of the claims of the '540 patent asserted against the Company were invalidated by this order. Subsequently, Sequenom entered into stipulations with Verinata and the Company conditionally agreeing that the remaining asserted claims of the '540 Patent should be deemed invalid under 35 U.S.C. §101. The Court then entered judgment in favor of Verinata and the Company in their respective cases in November 2013. Sequenom has appealed all three judgments to the Court of Appeals for the Federal Circuit ("CAFC"). The CAFC has consolidated the Ariosa, Verinata and the Company's cases for purposes of appeal, such that the CAFC can make a single ruling on the '540 patent claims that apply to all parties involved. The appellate arguments were heard on November 7, 2014. On December 2, 2014, Sequenom and Verinata settled the pending claims between them. On June 12, 2015, the CAFC affirmed the district court's finding of invalidity with respect to the Company and Ariosa. On August 13, 2015, Sequenom requested a rehearing en banc by the full panel of the CAFC, and on October 19, 2015, the Company and Ariosa each filed a response to Sequenom’s request.  On December 2, 2015, Sequenom’s petition for a rehearing en banc was denied. On March 21, 2016, Sequenom filed a petition for writ of certiorari with the Supreme Court.  The Company intends to continue to vigorously assert its claims and defend against the counterclaims in this lawsuit, but it cannot be certain of the outcome.

Third-Party Payer Reimbursement Audits

In November 2014, a third-party payer sought information as part of an investigative audit of claims which it had paid for certain genetic testing. The Company complied with their request and provided responsive information. In a letter dated June 2, 2015, the third-party payer alleged that it had overpaid $1.9 million to the Company,  which it claimed was an overpayment reflecting the difference between what it paid to the Company and what it contended it should have paid based on its fee schedule and coverage determinations. In August 2015, the Company reached an agreement for a settlement payment of $1.2 million as part of a complete settlement of this matter. This charge was recorded against revenue in the second quarter of 2015.

Contractual Commitment

As of December 31, 2015, the Company has non‑cancelable contractual commitments with a supplier of approximately $12.2 million and other material supplier commitments of approximately $1.5 million in the aggregate for inventory material used in the laboratory testing process.

In January 2015, the Company entered into a laboratory services agreement with a total remaining minimum of approximately $5.1 million through October 2016.

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Stock-Based Compensation

Stock-Based Compensation

7.    Stock‑Based Compensation

Equity Plans

2015 Equity Incentive Plan

General.    Our board of directors adopted our 2015 Equity Incentive Plan, or our 2015 Plan, in June 2015. Our 2015 Plan replaced our 2007 Stock Plan. However, awards outstanding under the 2007 Plan will continue to be governed by the terms of the 2007 plan.

Share Reserve.    The initial number of shares of our common stock available for issuance under our 2015 Plan was 3,451,495 shares. As of December 31, 2015, 3,743,382 shares were available for issuance under the 2015 plan which includes unissued and forfeited shares from the 2007 plan. The number of shares reserved for issuance under the 2015 Plan will be increased automatically on the first business day of each of our fiscal years, commencing in 2016, by a number equal to the smallest of:

· 3,500,000 shares;

· 4% of the shares of common stock outstanding on the last business day of the prior fiscal year; or

· the number of shares determined by our board of directors.

In general, to the extent that any awards under the 2015 Plan are forfeited, terminate, expire or lapse without the issuance of shares, or if we repurchase the shares subject to awards granted under the 2015 Plan, those shares will again become available for issuance under the 2015 Plan, as will shares applied to pay the exercise or purchase price of an award or to satisfy tax withholding obligations related to any award.

Eligibility.    Employees, non-employee directors, consultants and advisors are eligible to participate in our 2015 Plan.

Under our 2015 Plan, the aggregate grant date fair value of awards granted to our non-employee directors may not exceed $500,000 in any one fiscal year, except that the grant date fair value of awards granted to newly appointed non-employee directors may not exceed $1,000,000 in the fiscal year in which such non-employee director is initially appointed to our board of directors.

Types of Awards.    Our 2015 Plan provides for the following types of awards:

· incentive and nonstatutory stock options;

· stock appreciation rights;

· restricted shares;

· stock units; and

· performance cash awards.

Options and Stock Appreciation Rights.    The exercise price for options granted under the 2015 Plan may not be less than 100% of the fair market value of our common stock on the grant date. Optionees may pay the exercise price in cash or, with the consent of the compensation committee by other approved methods.

An optionee who exercises a stock appreciation right receives the increase in value of our common stock over the base price. The base price for stock appreciation rights may not be less than 100% of the fair market value of our common stock on the grant date. The settlement value of a stock appreciation right may be paid in cash, shares of our common stock or a combination.

Options and stock appreciation rights vest as determined by the compensation committee. In general, they will vest over a four-year period following the date of grant. Options and stock appreciation rights expire at the time determined by the compensation committee but in no event more than tenyears after they are granted. These awards generally expire earlier if the participant's service terminates earlier. No participant may be granted stock options or stock appreciation rights under our 2015 Plan covering more than 1,725,000 shares in any fiscal year, except that a new employee may receive stock options or stock appreciation rights covering up to 350,000 additional shares in the fiscal year in which employment commences.

Restricted Shares and Stock Units.    Restricted shares and stock units may be awarded under the 2015 Plan in return for any lawful consideration, and participant who receive restricted shares or stock units generally are not required to pay cash for their awards. In general, these awards will be subject to vesting. Vesting may be based on length of service, the attainment of performance-based milestones or a combination of both, as determined by the compensation committee. No participant may be granted restricted share awards or stock units with performance-based vesting covering more than 1,500,000 shares during any fiscal year, except that a new employee may receive restricted shares or stock units covering up to 300,000 additional shares in the fiscal year in which employment commences. Settlement of vested stock units may be made in the form of cash, shares of common stock or a combination.

Performance Cash Awards.    Performance cash awards may be granted under the 2015 Plan that qualify as performance-based compensation that is not subject to the income tax deductibility limitations imposed by Section 162(m) of the Internal Revenue Code, if the award is approved by our compensation committee and the grant or vesting of the award is tied solely to the attainment of performance goals during a designated performance period. No participant may be paid more than $5,000,000 in cash in any calendar year pursuant to a performance cash award granted under the 2015 Plan.

To the extent a performance award is not intended to comply with Section 162(m) of the Internal Revenue Code, the compensation committee may select other measures of performance.

Corporate Transactions.    In the event we are a party to a merger, consolidation or certain change in control transactions, outstanding awards granted under the 2015 Plan, and all shares acquired under the 2015 Plan, will be subject to the terms of the definitive transaction agreement (or, if there is no such agreement, as determined by our compensation committee).

The compensation committee is not required to treat all awards, or portions thereof, in the same manner.

The vesting of an outstanding award may be accelerated by the administrator upon the occurrence of a change in control, whether or not the award is to be assumed or replaced in the transaction, or in connection with a termination of service following a change in control transaction.

Changes in Capitalization.    In the event of certain changes in our capital structure without our receipt of consideration, such as a stock split, reverse stock split or dividend paid in common stock, proportionate adjustments will automatically be made to the maximum number and kind of shares available for issuance under the 2015 Plan and outstanding stock award, if any as applicable.

In the event that there is a declaration of an extraordinary dividend payable in a form other than our common stock in an amount that has a material effect on the price of our common stock, a recapitalization, a spin-off or a similar occurrence, the compensation committee may make such adjustments to any of the foregoing as it deems appropriate, in its sole discretion.

Amendments or Termination.    Our board of directors may amend or terminate the 2015 Plan at any time. If our board of directors amends the 2015 Plan, it does not need stockholder approval of the amendment unless required by applicable law, regulation or rules. The 2015 Plan will terminate automatically 10 years after the later of the date when our board of directors adopted the 2015 Plan or approved the latest share increase that was also approved by our stockholders.

2007 Stock Plan

General.    Our board of directors adopted our 2007 Plan in January 2007, and it was approved by our stockholders. No further awards have been made under our 2007 Plan after July 1, 2015, the date of our initial public offering; however, awards outstanding under our 2007 Plan will continue to be governed by their existing terms.

Share Reserve.    As of December 31, 2015, we reserved 15,258,947 shares of our common stock for issuance under the 2007 Plan, all of which may be issued as incentive stock options. As of December 31, 2015, options to purchase 8,621,395 shares of common stock, at exercise prices ranging from $0.0065 to $12.8501 per share, or a weighted-average exercise price of $3.27 per share, were outstanding under the 2007 Plan.

Administration.    The compensation committee of our board of directors administers the 2007 Plan and the administrator has complete discretion to make all decisions relating to the 2007 Plan and outstanding awards.

Eligibility.    Employees, non-employee members of our board of directors, consultants and advisors were eligible to participate in our 2007 Plan.

Types of Awards.    Our 2007 Plan provides for the following types of awards:

· incentive and nonstatutory stock options; and

· restricted shares.

Options.    The exercise price for stock options granted under our 2007 Plan may not be less than 100% of the fair market value of our common stock on the grant date. Optionees may pay the exercise price in cash or cash equivalents or in one, or by any combination of, the following forms of payment, as permitted by the administrator in its sole discretion:

· by delivery of a full-recourse promissory note, with the shares pledged as security against the principal and accrued interest on the note;

· with shares of common stock that the optionee already owns;

· by an immediate sale of the shares through a broker approved by us, if shares of our common stock are publicly traded;

· by instructing us to withhold a number of shares having an aggregate fair market value that does not exceed the exercise price; or

· by other methods permitted by applicable law.

Options vest as determined by the administrator. In general, we granted options that vest over a four-year period following the date of grant. In most cases, options granted prior to 2011 (and prior to 2012 with respect to our executive officers) were immediately exercisable, subject to our right to repurchase unvested shares. Options expire at the time determined by the administrator, but in no event more than ten years after they were granted, and generally expire earlier if the optionee's service terminates earlier.

Restricted Shares.    Restricted shares could be awarded or sold under the 2007 Plan in return for cash or cash equivalents or, as permitted by the administrator in its sole discretion, in exchange for services rendered to us, by delivery of a full-recourse promissory note or through any other means permitted by applicable law. Restricted shares vest as determined by the administrator.

Corporate Transactions.    In the event that we are a party to a merger or consolidation, shares acquired under the 2007 Plan will be subject to the agreement of merger or consolidation. Such agreement will provide for one or more of the following with respect to outstanding options:

· the continuation, assumption or substitution of the option by the surviving entity or its parent;

· full exercisability and vesting of the option, followed by cancellation if not exercised; or

· cancellation of the option in exchange for a payment equal to the excess, if any, of the value that the holder of a share of our common stock receives in the transaction over the exercise price per share of the option. Such payment may be subject to vesting based on the optionee's continuing service, generally in accordance with the vesting schedule applicable to the option.

The administrator is not obligated to treat all awards in the same manner. The administrator has the discretion, at any time, to provide that an award granted under the 2007 Plan will vest on an accelerated basis if we are subject to a change of control or if the participant is subject to an involuntary termination.

Changes in Capitalization.    In the event of certain specified changes in the capital structure of our common stock, such as a stock split, reverse stock split, stock dividend, reclassification or any other increase or decrease in the number of issued shares of stock effective without receipt of consideration by us, proportionate adjustments will automatically be made in each of the number of shares covered by each outstanding option under the 2007 Plan and the exercise price per share subject to each outstanding option. In the event of an extraordinary cash dividend that has a material effect on the fair market value of our common stock, a recapitalization, spin-off, or other similar occurrence, the administrator at its sole discretion may make appropriate adjustments in one or more of the number of shares covered by each outstanding option under our 2007 Plan and the exercise price per share subject to each outstanding option.

Amendments or Termination.    The administrator may at any time amend, suspend or terminate the 2007 Plan, subject to stockholder approval if the amendment increases the number of shares available for issuance or materially changes the class of persons eligible to receive incentive stock options. The 2007 Plan will terminate automatically 10 years after the later of the date when our board of directors adopted the 2007 Plan or approved the latest share increase that was also approved by our stockholders.

2015 Employee Stock Purchase Plan

General.    Our 2015 Employee Stock Purchase Plan, or 2015 ESPP, was adopted by our board of directors in June 2015 and our stockholders approved it in June 2015. The first offering period under our 2015 ESPP started on December 15, 2015. Our 2015 ESPP is intended to qualify under Section 423 of the Internal Revenue Code.

Share Reserve.    We have reserved 893,548 shares of our common stock for issuance under the 2015 ESPP. The number of shares reserved for issuance under the 2015 ESPP will automatically be increased on the first business day of each of our fiscal years, commencing in 2016, by a number equal to the least of:

· 880,000 shares;

· 1% of the shares of common stock outstanding on the last business day of the prior fiscal year; or

· the number of shares determined by our board of directors.

The number of shares reserved under the 2015 ESPP will automatically be adjusted in the event of a stock split, stock dividend or a reverse stock split (including an adjustment to the per-purchase period share limit).

Administration.    The compensation committee of our board of directors will administer the 2015 ESPP.

Eligibility.    All of our employees are eligible to participate if we employ them for more than 20 hours per week and for five or more months per year. Eligible employees may begin participating in the 2015 ESPP at the start of any offering period.

Offering Periods.    Each offering period will last a number of months determined by the compensation committee, not to exceed 27 months. A new offering period will begin periodically, as determined by the compensation committee. Offering periods may overlap or may be consecutive. Unless otherwise determined by the compensation committee, two offering periods of six months' duration will begin in each year on May 1 and November 1. However, if so determined by the compensation committee, the first offering period started on December 15, 2015 and will end on April 30, 2016, with the first purchase date occurring on April 29, 2016.

Amount of Contributions.    Our 2015 ESPP permits each eligible employee to purchase common stock through payroll deductions. Each employee's payroll deductions may not exceed 15% of the employee's cash compensation. Each participant may purchase up to the number of shares determined by our board of directors on any purchase date, not to exceed 5,000 shares. The value of the shares purchased in any calendar year may not exceed $25,000. Participants may withdraw their contributions at any time before stock is purchased.

Purchase Price.    The price of each share of common stock purchased under our 2015 ESPP will not be less than 85% of the lower of the fair market value per share of common stock on the first day of the applicable offering period (or, in the case of the first offering period, the price at which one share of common stock is offered to the public in this offering) or the fair market value per share of common stock on the purchase date.

Other Provisions.    Employees may end their participation in the 2015 ESPP at any time. Participation ends automatically upon termination of employment with us. If we experience a change in control, our 2015 ESPP will end and shares will be purchased with the payroll deductions accumulated to date by participating employees. Our board of directors or our compensation committee may amend or terminate the 2015 ESPP at any time.

Early Exercise of Employee Options

As of December 31, 2015, the Company had approximately 1.3 million exercised and unvested shares outstanding that are subject to a repurchase right held by the Company at the original issuance price in the event that the optionee’s employment is terminated, either voluntarily or involuntarily. Effective in the year ended December 31, 2015, pursuant to the agreements with the option holders, the Company changed its estimated expiration of the Company’s repurchase right for 1.3 million exercised and unvested shares outstanding that are subject to repurchase right held by the Company through the 210 days after the date of the prospectus filed in connection with the Company’s IPO. Accordingly the unrecognized compensation expense is being accelerated over a shorter performance period through January 2016. As a result of this acceleration, the Company recorded an additional $1.3 million in stock-based compensation expense during the year ended December 31, 2015.

Stock Options

The following table summarizes option activity for the years ended December 31, 2015, 2014 and 2013:

	Outstanding Options
					Weighted-
			Weighted-		Average
	Shares		Average		Remaining	Aggregate
	Available for	Number of	Exercise		Contractual	Intrinsic
(in thousands, except for contractual life and exercise price)	Grant	Shares	Price		Life	Value
					(In years)
Balance at December 31, 2014	294	8,463	$	2.28	8.83	$	43,659
Additional shares authorized	4,985	—
Options granted	(2,181)	2,181	$	10.16
Options exercised	—	(683)	$	1.72
Options forfeited	645	(645)	$	5.25
Balance at December 31, 2015	3,743	9,316	$	3.96	8.31	$	63,713
Exercisable at December 31, 2015		5,602	$	1.90	5.31	$	49,880
Vested and expected to vest at December 31, 2015		8,414	$	3.72	7.32	$	59,529

The total intrinsic value of stock options exercised during the years ended December 31, 2015, 2014 and 2013 was $6.9 million, $1.2 million and $0.7 million, respectively. The total fair value of stock options vested during the years ended December 31, 2015, 2014 and 2013 was $4.5 million $4.1 million and $1.0 million, respectively.

The weighted-average grant date fair value of options granted during the years ended December 31, 2015, 2014 and 2013 was $7.29,  $3.28 and $0.99 per share, respectively.

Stock‑Based Compensation Expense

Employee and non‑employee stock‑based compensation expense was calculated based on awards ultimately expected to vest and have been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates.

The following table presents the effect of employee and non‑employee stock‑based compensation expense on selected statements of operations line items for the years ended December 31, 2015, 2014 and 2013.

	Year ended December 31,
	2015						2014						2013
	Employee		Non-Employee		Total		Employee		Non-Employee		Total		Employee		Non-Employee		Total
	(in thousands)
Cost of revenues	$	351	$	241	$	592	$	262	$	29	$	291	$	55	$	7	$	62
Research and development		1,566		9		1,575		1,563		30		1,593		612		4		616
Selling, general and administrative		4,993		166		5,159		3,180		93		3,273		970		9		979
Total	$	6,910	$	416	$	7,326	$	5,005	$	152	$	5,157		1,637	$	20	$	1,657

As of December 31, 2015, approximately $14.7 million of unrecognized compensation expense, adjusted for estimated forfeitures, related to unvested stock options will be recognized over a weighted‑average period of approximately 1.96 years.

Valuation of Stock Option Grants to Employees

The Company estimates the fair value of its stock options granted to employees on the grant date using the Black‑Scholes option‑pricing model. The fair value of employee stock options is amortized on a straight‑line basis over the requisite service period of the awards, generally the vesting period. The fair value of employee stock options was estimated using the following assumptions:

	Year ended December 31,
	2015					2014					2013
Expected term	5.6		—	10.0		4.91		—	7.06		6.0
Expected volatility	69.7	%	—	78.8	%	73.4	%	—	87.0	%	63.7	%	—	85.7	%
Expected dividend rate				0	%				0	%				0	%
Risk-free interest rate	1.56	%	—	2.32	%	1.65	%	—	2.04	%	0.44	%	—	2.86	%

Expected Term:    The expected term of options represents the period of time that options are expected to be outstanding. The Company's historical stock option exercise experience does not provide a reasonable basis upon which to estimate an expected term due to a lack of sufficient data. For granted "at-the-money" stock options, the Company estimates the expected term by using the simplified method permitted by the Securities and Exchange Commission. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options. For stock options that are not granted "at-the-money," the Company uses the binomial lattice model to calculate the expected term.

Expected Volatility:    The Company derived the expected volatility from the average historical volatilities of comparable publicly traded companies within its peer group over a period approximately equal to the expected term.

Expected Dividend Rate:    The Company has not paid and does not anticipate paying any dividends in the near future.

Risk-Free Interest Rate:    The risk-free interest rate assumption is based on U.S. Treasury yield in effect at the time of grant for zero coupon U. S. Treasury notes with maturities approximately equal to the expected term.

Valuation of Stock Option Grants to Non-Employees

Total options outstanding as of December 31, 2015, include 0.2 million options that were granted to non-employees, of which 0.1 million options are unvested. Stock-based compensation expense related to stock options granted to non-employees is recognized as the stock option is earned and the services are rendered. The Company believes that the estimated fair value of the stock options is more readily measurable than the fair value of the services rendered. The fair value of the stock options granted to non-employees is calculated at each reporting date using the Black-Scholes options-pricing model with the following assumptions:

	Year ended December 31,
	2015					2014					2013
Expected term	4.9		—	9.8		4.4		—	10.0		8.4
Expected volatility	70.2	%	—	75.4	%	71.9	%	—	80.2	%	75.6	%	—	81.5	%
Expected dividend rate				0	%				0	%				0	%
Risk-free interest rate	1.74	%	—	2.24	%	1.41	%	—	2.61	%	1.44	%	—	2.51	%

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8.  Debt

Senior Secured Term Loan

In April 2013, as amended in June 2014, the Company entered into a senior secured term loan arrangement (the "Secured Loan Arrangement") with ROS Acquisition LP ("ROS"). The Secured Loan Arrangement provided for up to $40.0 million in borrowing capacity ("Credit Agreement"), a warrant to purchase shares of Common Stock, and an agreement to pay royalties on Company revenues ("Royalty Agreement"). The Company borrowed $20.0 million on the effective date of the Credit Agreement. The Credit Agreement provided for an interest rate equal to the greater of (a) LIBOR or (b) 1% per annum plus the applicable margin of 8% per annum or 9% floor on the outstanding balance of the term loan. The Royalty Agreement obligated the Company to make royalty payments of 1% applied to total Company fiscal year revenues of up to $50.0 million and 1.5% applied to fiscal year incremental revenues above $50.0 million. For the year ended December 31, 2015, the Company incurred approximately $1.4 million and $7.1 million in interest expenses under the Credit Agreement and royalty expenses under the Royalty Agreement, respectively.  The $7.1 million in royalty expense included$1.8 million in royalty due and the remainder was for part of the $28.0 million pay-off to ROS.  Please refer to paragraph below for pay-off details. For the year ended December 31, 2014, the Company incurred approximately $1.8 million and $2.2 million in interest expenses under the Credit Agreement and royalty expenses under the Royalty Agreement, respectively. For the year ended December 31, 2013, the Company incurred approximately $1.3 million and $0.5 million in interest expenses under the Credit Agreement and royalty expense under the Royalty agreement, respectively. The interest on the loan is set forth in the financial statements as interest expense below loss from operations. The effective yield was approximately 20.9%,  19.8% and 12.6%, respectively, for the year ended December 31, 2015, 2014 and 2013, excluding royalty and interest early termination payments. Under the terms of the Secured Loan Arrangement, the Company issued ROS a warrant to purchase 376,691 shares of common stock with an exercise price of $2.3229 per share. The Credit Agreement principal is due and payable on April 18, 2019. The Company could at its option, prepay the term loan borrowings subject to a prepayment premium equivalent to 10% of the outstanding principal. Prepayment of the amount due under the Credit Agreement did not eliminate the royalty payment obligation, which if not terminated, would have expired no later than April 18, 2023.

ROS maintained a security interest in substantially all of the Company's tangible and intangible assets, including intellectual property, to secure any outstanding amounts under the Credit Agreement. The Credit Agreement contained customary events of default, conditions to borrowing and covenants, including restrictions on the ability to dispose of assets, make acquisitions, incur debt, incur liens and make distributions to stockholders, including dividends. The Credit Agreement also included a financial covenant requiring the maintenance of minimum liquidity of $5.0 million and minimum revenue thresholds. During the continuance of an event of a default, ROS could have accelerated amounts outstanding, terminate the credit facility and foreclose on all collateral. The Company was in compliance with all covenants under the terms of the Secured Loan Arrangement with ROS throughout the life of the loan.

In October 2015, the Company paid off the entire $20.0 million in borrowings under the Secured Loan Arrangement with ROS. The Company made a payment of $28.0 million to ROS, comprising $20.0 million in principal, $2.0 million (10% outstanding principal) in prepayment penalty and $6.0 million (which includes royalty amounts for third quarter 2015 transactions and the cost to extinguish the liability) in royalty payment applied toward the royalty obligation. This payment released the Company from all future loan payments, royalty payments and all associated liens securing the loan.

Credit Line Agreement

In September 2015, the Company entered into the Credit Line with UBS providing for a $50.0 million revolving line of credit which can be drawn down in increments at any time.  In October 2015, the Company borrowed $32.0 million against the Credit Line, primarily to prepay all outstanding amounts under the Secured Loan Arrangement with ROS. The Credit Line bears interest at 30-day LIBOR plus 0.65%, and equals approximately 0.84% per annum at the time of the draw.  In November, 2015, the Company borrowed an additional $10.0 million which bears interest at approximately 0.85% per annum.  The Credit Line is secured by a first priority lien and security interest in the Company’s money market and marketable securities held in its managed investment account with UBS. UBS has the right to demand full or partial payment of the Credit Line Obligations and terminate the Credit Line, in its discretion and without cause, at any time.

Equipment Financing Facility

In April 2013, the Company entered into an equipment financing facility (the “Equipment Financing Facility”) with a financial institution pursuant to which the Company could borrow up to $5.0 million to fund equipment purchases. The financial institution maintained a security interest in the underlying equipment until payment in full of the loan. The loan bore interest at the financial institution's prime reference rate (defined as the 30-day LIBOR rate plus 2.50%) plus 4.10%, which equaled 7.35% upon closing of the agreement. In December 2014, the Company amended the Equipment Financing Facility increasing the loan amount to $5.9 million to fund equipment purchased. The Company paid interest on the unpaid principal at the financial institution's prime reference rate plus 3.10%, which equaled 6.35%. Under the terms of the Equipment Financing Facility, the loan would mature on May 31, 2017. Under the terms of the Equipment Financing Facility, the Company would be required to make 30 payments of principal and interest through the maturity of the loan in May 2017.

In September 2015, the Company paid off the remaining principal balance of the equipment financing facility.  The Company made a payment of $4.1 million, comprising of principal, interest and administrative fees settling all of its obligations under the loan.

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Warrants

12 Months Ended

Dec. 31, 2015

Warrants.

Warrants

9.Warrants

In 2007, the Company issued warrants to purchase an aggregate of 24,538 shares of common stock at an exercise price of $0.0978 per share to various holders. As of December 31, 2015, these warrants were fully exercised.

In 2009, the Company granted warrants to purchase 33,742 shares of Series B convertible preferred stock at an exercise price of $1.8908 per share. The warrants were granted to a financial institution in connection with a secured equipment loan and expire on November 2, 2019. In connection with the IPO in July 2015, these warrants were converted into the right to purchase common stock at a one-to-one ratio. In December 2015, the financial institution net-exercised all 33,742 of their warrant shares at the strike price of $1.8908 per share.  Based on the Natera closing price of $11.57 per share on the prior business day, Natera issued 28,227 shares to the financial institution.

In April 2014, the Company granted warrants to purchase approximately 376,691 warrants to purchase common stock at an exercise price of $2.3229 per common share.  The warrants were granted to ROS Acquisition Offshore LP in connection with our senior secured term loan and expire on April 18, 2023. It was determined that the warrants granted are detachable and therefore are a stand-alone component of the senior secured term loan to be fair valued using Level III inputs as a separate derivative.  As of December 31, 2015, these warrants remained exercisable for common stock.

In connection with the Series F financing, the Series E preferred stockholders agreed to change the liquidation preference from two times to one times the liquidation value as described in the agreement. In exchange, on November 20, 2014, the Company issued common stock warrants to the Series E preferred stockholders to purchase 429,440 shares at $0.0163 per share. The warrants are carried in Additional Paid In Capital and the issuance of the warrants was treated as a deemed dividend by the common stockholder out of Additional Paid in Capital. In connection with the IPO in July 2015, such warrants were automatically net exercised into 429,042 shares of common stock.

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Convertible Preferred Stock

12 Months Ended

Dec. 31, 2015

Convertible Preferred Stock.

Convertible Preferred Stock

10.    Convertible Preferred Stock

At the closing of the IPO in July 2015, 31,397,221 shares of outstanding convertible preferred stock were automatically converted into common stock on a one-to-one basis. Following the IPO, there were no shares of preferred stock outstanding. In connection with the IPO, the Company amended and restated its Amended and Restated Certificate of Incorporation to change the authorized capital stock to 750.0 million shares designated as common stock and 50.0 million shares designated as preferred stock, all with a par value of $0.0001 per share.

As of December 31, 2014, the convertible preferred stock consisted of the following:

	Shares	Shares Issued and	Liquidation		Proceeds, net of
Series	Authorized	Outstanding	Amount		Issuance Costs
	(in thousands)
A-1	5,000	3,067	$	20	$	20
A	8,173	5,014		4,005		3,927
B	5,745	3,491		6,600		6,569
C	8,941	5,485		12,160		58,876
D	6,694	4,107		20,047		80,788
E	9,592	5,884		35,425		35,019
F	7,088	4,349		55,500		55,413
	51,233	31,397	$	133,757	$	240,612

Each share of Series A-1, Series A, Series B, Series C, Series D, Series E and Series F convertible preferred stock was convertible, at the option of the holder, into that number of fully paid and non-assessable shares of common stock that was equal to $0.0065,  $0.7987,  $1.8908,  $2.2168,  $4.8819,  $6.0199, and $12.7629 per share, respectively (as adjusted for stock splits, combinations, and reorganizations), divided by the conversion price of $0.0065,  $0.7987,  $1.8908,  $2.2168,  $4.8819,  $6.0199, and $12.7629, respectively (as adjusted for stock splits, combinations, and reorganizations). Additionally, each share of convertible preferred stock automatically converted into shares of common stock at the conversion rate at the time in effect for such series of convertible preferred stock immediately upon the earlier of: (i) the Company's sale of its common stock in a firm commitment underwritten public offering pursuant to a registration statement on Form S-1 under the Securities Act of 1933, as amended, the public offering price of which was not less than $40.0 million in the aggregate; or (ii) the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of convertible preferred stock (voting together as a single class and not as separate series, and on an as-converted basis); provided, however, that an automatic conversion of the outstanding shares of Series E convertible preferred stock pursuant to clause (ii) above required the written consent or agreement of the holders of at least seventy percent of the outstanding shares of Series E convertible preferred stock unless such conversion is in connection with (x) an underwritten public offering of this corporation or (y) a bona fide financing transaction with a pre-money equity valuation on an as converted, fully diluted basis of less than $100.0 million that results in a recapitalization of the Company, in which case on the consent of the holders of a majority of the then outstanding shares of convertible preferred stock (voting together as a single class and not as separate series, and on an as-converted basis) was required to convert each share of convertible preferred stock. Series A and Series B preferred stockholders could elect two Board members (voting together as a single class) and Series C preferred stockholders could elect one Board member. No Board member had been elected at this time for the Series C convertible preferred stock.

The holders of shares of convertible preferred stock were entitled to receive dividends, on an equal basis, out of any assets legally available thereof, prior and in preference to any declaration or payment of any dividend (payable other than in common stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of common stock of this corporation) on the common stock of this corporation, at the applicable Dividend Rate (as defined below), payable when, as, and if declared by the Board. Such dividends were cumulative. Dividend Rate means $0.0639 per annum for each share of Series A convertible preferred stock, $0.0005 per annum for each share of Series A-1 convertible preferred stock, $0.1513 per annum for each share of Series B convertible preferred stock, $0.1773 per annum for each share of Series C convertible preferred stock, $0.3911 per annum for each share of Series D convertible preferred stock, $0.4817 per annum for each share of Series E convertible preferred stock, and $1.021 per annum for each share of Series F convertible preferred stock (each as adjusted for any stock splits, stock dividends, combinations, subdivisions, or recapitalizations).

In the event of a Company liquidation, the holders of Series E and Series F convertible preferred stock were entitled to receive, prior and in preference to any distribution of the proceeds of such liquidation to the holders of Series A, Series A-1, Series B, Series C, and Series D convertible preferred stock by reason of their ownership thereof, an amount per share equal to the sum of the original issue price for the Series E and Series F convertible preferred stock, plus declared and unpaid dividends on such shares.

The holder of each share of convertible preferred stock had the right to one vote for each share of common stock into which such preferred stock could be converted and such holder had full voting rights and powers equal to the voting rights and powers of the holders of common stock, and was entitled to notice of any stockholders' meeting in accordance with the bylaws of the Company, except as provided for the election of directors by separate class vote of the holders of common stock, and was entitled to vote, together with holders of common stock, with respect to any question upon which holders of common stock have the right to vote. The Series A and Series B preferred stockholders could elect one director (voting together as a single class, not as a separate series and on an as-converted basis) and Series C preferred stockholders could elect one director at any election of directors.

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CommonStock

12 Months Ended

Dec. 31, 2015

Common Stock.

Common Stock

11.Common Stock

The Company's Certificate of Incorporation, as restated in connection with the closing of the IPO, authorizes the Company to issue 750.0 million shares of common stock with a par value of $0.0001 per share. As of December 31, 2015 and December 31, 2014, the Company had 50.3 million and 6.9 million shares of common stock outstanding, respectively. Each shareholder of common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders.

The Company's board of directors and stockholders approved an amendment to its Certificate of Incorporation to effect a 1-for-1.63 reverse split of its capital stock, which was effected on June 19, 2015. All references to common stock, options to purchase common stock, restricted stock, share data, per share data, warrants, convertible preferred stock and related information have been retroactively adjusted where applicable in this report to reflect the reverse stock split of the Company's capital stock as if it had occurred at the beginning of the earliest period presented.

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Income Taxes

12 Months Ended

Dec. 31, 2015

Income Taxes

Income Taxes

12.Income Taxes

The Company's effective tax rates for the years ended December 31, 2015 and 2014 differ from the U.S. federal statutory rate as follows:

	December 31,
	2015				2014
	(in thousands, except percentages)
U.S. federal taxes (benefit) at statutory rate	$	(24,375)	(34.00)	%	$	(1,747)	(34.00)	%
State tax expense		(2,428)	(3.39)	%		(294)	(5.72)	%
Research and development credits		(751)	(1.05)	%		(530)	(10.32)	%
Stock-based compensation		1,683	2.35	%		755	14.70	%
Mark to market fair value adjustments		504	0.70	%		566	11.01	%
Other nondeductible items		841	1.17	%		414	8.05	%
Change in valuation allowance		24,526	34.21	%		851	16.57	%
Provision for income taxes	$	—	—	%	$	15	0.29	%

Due to its history of operating losses, the Company has not recorded any income tax expense for the years ended December 31, 2015 and December 31, 2014, except for $15 thousand of state income tax expense in 2014. As the provision for income taxes is not significant for 2015 and 2014, any income taxes have been reclassed in other income and expenses.

Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes as well as net operating loss and tax credit carryforwards.   The components of the net deferred income tax assets are as follows:

	December 31,
	2015		2014
	(in thousands)
Deferred tax assets
Net operating loss carryforwards	$	41,451	$	21,587
Research and development tax credit carryforwards		4,794		2,696
Reserves and accruals		3,108		1,717
Stock-based compensation		2,206		1,505
Total deferred tax assets before valuation allowance		51,559		27,505
Less: valuation allowance		(51,153)		(26,627)
		406		878
Deferred tax liabilities
Property and equipment		(406)		(878)
Net deferred tax assets	$	—	$	—

The Company established a full valuation allowance against its net deferred tax assets in 2015 and 2014 due to the uncertainty surrounding realization of these assets. The valuation allowance increased by $24.5 million, $0.9 million and $10.8 million during the years ended December 31, 2015, 2014 and 2013, respectively.

As of December 31, 2015, the Company had federal and state net operating loss (NOLs) carryforwards of approximately $114.5 million and $73.2 million, respectively, which begin to expire in 2027 and 2017, respectively, if not utilized. The deferred tax assets related to NOLs do not include excess tax benefits from employee stock option exercises. Equity will be increased by $1.4 million, if and when such deferred tax assets are ultimately realized. The Company uses ASC 740 ordering when determining when excess tax benefits have been realized. The Company also had federal research and development credit carryforwards of approximately $4.6 million, which begin to expire in 2027, and state research and development credit carryforwards of approximately $3.4 million, which can be carried forward indefinitely. Realization of these deferred tax assets would require $138.8 million in taxable income to fully utilize. Realization is dependent on generating sufficient taxable income prior to expiration of the loss and credit carryforwards.

Federal and California tax laws impose substantial restrictions on the utilization of NOLs and credit carryforwards in the event of an "ownership change" for tax purpose, as defined in Section 382 of the Internal Revenue Code. Accordingly, the Company's ability to utilize these carryforwards may be limited as the result of such ownership change. Such a limitation could result in limitation in the use of the NOLs in future years and possibly a reduction of the NOLs available.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

	December 31,
	2015		2014
	(in thousands)
Balance at beginning of year	$	1,360	$	898
Additions based on tax positions related to the current year		1,045		462
Additions for tax positions of prior years		—		—
Balance at end of year	$	2,405	$	1,360

The Company adopted the provisions of ASC 740-10-50, Accounting for Uncertainty in Income Taxes, on January 1, 2009. During the years ended December 31, 2015 and 2014, the amount of unrecognized tax benefits increased $1.0 million and $0.5 million, respectively, due to additional research and development credits generated during the year. As of December 31, 2015 and 2014, the total amount of unrecognized tax benefits was $2.4 million and $1.4 million, respectively. The reversal of the uncertain tax benefits would not affect the Company's effective tax rate to the extent that it continues to maintain a full valuation allowance against its deferred tax assets.

The Company is subject to U.S. federal income taxes and to income taxes in various states in the United States. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations, and require significant judgment to apply. The Company is subject to U.S. federal, state and local tax examinations by tax authorities for all prior tax years since incorporation. The Company does not anticipate significant changes to its current uncertain tax positions through December 31, 2016.

The Company recognizes any interest and/or penalties related to income tax matters as a component of income tax expense.  As of December 31, 2015, there were no accrued interest and penalties related to uncertain tax positions.

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Related‑Party Transactions

12 Months Ended

Dec. 31, 2015

Related‑Party Transactions

Related‑Party Transactions

13.Related‑Party Transactions

The chief executive officer of the Company received a monthly payment based on his use for Company business purposes of an apartment that he owned in New York City. For the years ended December 31, 2015, 2014 and 2013, the Company expensed $9,500,  $22,800 and $22,642, respectively. The Company ceased making payments for this property following the sale of the apartment during the second quarter of 2015.

The Company entered into a full recourse promissory note with the Company’s chief executive officer, in April 2012. Pursuant to this note, which was secured by a stock pledge agreement, the Company loaned Dr. Rabinowitz $154,000. This interest only loan bore interest at a rate per annum of 1.15%, compounded annually. This loan, including all accrued interest, was repaid in full by Dr. Rabinowitz in May 2015.

The Company entered into a full recourse promissory note with Jonathan Sheena, the Company’s chief technology officer, in April 2012. Pursuant to this note, which was secured by a stock pledge agreement, the Company loaned Mr. Sheena $38,280. This interest only loan bore interest at a rate per annum of 1.15%, compounded annually. This loan, including all accrued interest, was repaid in full by Mr. Sheena in May 2015.

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Net Loss per Share

12 Months Ended

Dec. 31, 2015

Net Loss per Share

Net Loss per Share

14.Net Loss per Share

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Prior to the Company’s IPO of its common stock, the Company’s convertible preferred stock was entitled to receive dividends, prior and in preference to any declaration or payment of any dividend on common stock and thereafter participate pro rata on an as converted basis with the common stock holders on any distributions to common stockholders. The convertible preferred shares were therefore considered to be participating securities. As a result, the Company calculated the net loss per share using the two-class method. Accordingly, the net loss attributable to common stockholders is derived from the net loss for the period and, in periods in which the Company has net income attributable to common stockholders, an adjustment is made for the noncumulative dividends and allocations of earnings to participating securities based on their outstanding shareholder rights. Under the two-class method, the net loss attributable to common stockholders is not allocated to the convertible preferred stock as the convertible preferred stock did not have a contractual obligation to share in the Company’s losses. The diluted net income per share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. In periods when the Company has incurred a net loss, convertible preferred stock, options to purchase common stock, common stock warrants and common stock subject to repurchase are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.

The following table provides the basic and diluted net loss per common share computations for the years ended December 31, 2015, 2014 and 2013.

	Year ended December 31,
(in thousands, except per share data)	2015		2014		2013
Basic and diluted loss per share:
Net loss	$	(70,275)	$	(5,152)	$	(37,110)
Net loss attributable to common shares, basic and diluted		(70,275)		(5,152)		(37,110)
Weighted-average common shares outstanding		27,687		6,670		6,093
Less:  weighted-average unvested common shares subject to repurchase		(1,483)		(1,870)		(2,252)
Weighted-average number of shares used in computing net loss per share, basic and diluted		26,204		4,800		3,841
Basic and diluted net loss per share	$	(2.68)	$	(1.07)	$	(9.66)

Potentially dilutive shares that were not included in the diluted per share calculations because they would be anti‑dilutive as of the years ended December 31, 2015, 2014 and 2013 were as follows:

	Year ended December 31,
	2015	2014	2013
Options to purchase common stock	9,316	8,450	4,406
Warrants to purchase common stock	377	864	410
Common stock subject to repurchase	1,307	1,690	2,077
Convertible preferred stock	—	31,397	27,048
	11,000	42,401	33,941

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Geographic Information

12 Months Ended

Dec. 31, 2015

Geographic Information

Geographic Information

15.Geographic Information

The following table presents total revenues by geographic area based on the location of the Company’s customers:

	Year ended December 31,
(in thousands)	2015		2014		2013
United States	$	164,952	$	136,478	$	48,263
Americas, excluding U.S.		4,552		4,883		1,402
Europe, Middle East, India, Africa		15,437		13,098		4,275
Other		5,414		4,830		1,231
Total	$	190,355	$	159,289	$	55,171

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Quarterly Financial Data

12 Months Ended

Dec. 31, 2015

Quarterly Financial Data

Quarterly Financial Data

16.     Quarterly Financial Data (unaudited)

		Three months ended
		December 31,		September 30,		June 30,		March 31,
		(in thousands, except per share data)
2015
Operating results:
Total revenues	$	52,912	$	44,921	$	45,087	$	47,435
Cost of product revenues		31,814		30,456		25,732		24,843
Gross profit		21,098		14,465		19,355		22,592
Other costs and expenses		38,446		35,206		34,827		28,869
Interest expense and other income (expense), net		(5,612)		3,111		(4,209)		(3,727)
Net loss		(22,960)		(17,630)		(19,681)		(10,004)
Per share data:
Net income - basic and diluted	$	(0.47)	$	(0.39)	$	(3.58)	$	(1.89)
2014
Operating results:
Total revenues	$	49,884	$	46,274	$	35,836	$	27,295
Cost of product revenues		22,662		20,820		19,014		15,900
Gross profit		27,222		25,454		16,822		11,395
Other costs and expenses		22,849		20,675		18,027		18,677
Interest expense and other income (expense), net		(3,119)		(1,055)		691		(2,334)
Net income (loss)		1,254		3,724		(514)		(9,616)
Per share data:
Net income - basic	$	-	$	0.04	$	(0.11)	$	(2.09)
Net income - diluted		-		0.03		(0.11)		(2.09)

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Subsequent Events

12 Months Ended

Dec. 31, 2015

Subsequent Events

Subsequent Events

17.    Subsequent Events

None.

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2015

Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). .

Need to Raise Additional Capital

Need to Raise Additional Capital

The Company has incurred net losses since its inception and anticipates net losses and negative operating cash flows for the near future. For the year ended December 31, 2015, the Company had a net loss of $70.3 million, and as of December 31, 2015, it had an accumulated deficit of $250.1million. At December 31, 2015, the Company had $28.9 million in cash and cash equivalents and $201.6 million in marketable securities. While the Company has introduced multiple products that are generating revenues, these revenues have not been sufficient to fund all operations. Accordingly, the Company has funded the portion of operating costs that exceeds revenues through a combination of equity issuances, debt issuances, and other financings. The Company expects to develop and commercialize future products and, consequently, it will need to generate additional revenues to achieve future profitability and may need to raise additional equity or debt financing that may not be available, if at all, at terms acceptable to the Company to fund future operations. Based on our current business plan, we believe that our existing cash and marketable securities will be sufficient to meet our anticipated cash requirements for the next 12 months.

Principles of Consolidation

Principles of Consolidation

The accompanying condensed consolidated financial statements include all the accounts of the Company and its subsidiary. The Company established a subsidiary that operates in the state of Texas in December 2014 to support the Company’s laboratory and operational functions, which became active in the second quarter of 2015. All intercompany balances and transactions have been eliminated.

Use of Estimates

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions about future events that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Significant items subject to such estimates include the allowance for doubtful accounts, accrued liability for potential refund requests, stock-based compensation, the fair value of common stock and fair value of debt accounted for under ASC 815, as well as income tax uncertainties. These estimates and assumptions are based on management's best estimates and judgment. Management regularly evaluates its estimates and assumptions using historical experience and other factors; however, actual results could differ from these estimates and could have an adverse effect on the Company's financial statements.

Fair Value

Fair Value

The Company discloses the fair value of financial instruments for financial assets and liabilities for which the value is practicable to estimate. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company carried senior secured term loan and warrants at fair value according to the fair value measurement guidance.

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and money market deposits with financial institutions.

Restricted Cash

Restricted Cash

The Company discloses both short-term and long-term restricted cash.  Short-term restricted cash consists of $0.8 million, securing our letter of credit for our headquarters operating lease which expires in October 2016 and $0.1 million in payments received by certain customers.  Long-term restricted cash consists of $0.4 million deposit per credit card terms and $0.3 million securing our letter of credit for our headquarters operating lease which expires in January 2017.

Investments

Investments

Management determines the appropriate classification of securities at the time of purchase and reevaluates such determination at each balance sheet date. The Company generally classifies its entire investment portfolio as available-for-sale. The Company views its available-for-sale portfolio as available for use in current operations. Accordingly, the Company classifies all investments as short-term, even though the stated maturity may be more than one year from the current balance sheet date. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), which is a separate component of stockholders’ equity (deficit).

Risk and Uncertainties

Risk and Uncertainties

Financial instruments that potentially subject the Company to credit risk consist of cash, accounts receivable and investments. The Company limits its exposure to credit loss by placing its cash in financial institutions with high credit ratings. The Company's cash may consist of deposits held with banks that may at times exceed federally insured limits. The Company performs evaluations of the relative credit standing of these financial institutions and limits the amount of credit exposure with any one institution.

The Company bills third-party payers for certain tests performed. The amount that is ultimately received from the payer for our claim and the timing of such payments are subject to the determination of the payer based on the nature of the test performed and their view of our business practices with respect to collections of plan deductibles and co-payments from patients and other activities. This determination can impact both the amount and timing of when our invoices are collected. Payers may also withhold payments and request refunds of prior payments if we do not perform in accordance with the policies of these payers.

The Company performs evaluations of financial conditions for clinics and laboratory partners and generally does not require collateral to support credit sales. For 2015 and 2014, there were no customers exceeding 10% in total revenue. For 2013, two customers accounted for more than 10% of our revenues: Quest Diagnostics Incorporated (16%) and Progenity, Inc. (12%). As of December 31, 2015 and 2014, no customers had a receivable balance greater than 10% of net accounts receivable, and as of December 31, 2013, two customers had receivable balances of 37%  and 18% of total accounts receivable.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the amount billed to the laboratory partners and clinics. Reducing this amount is an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make the contracted payments. Management analyzes accounts receivable and historical bad debt experience, customer creditworthiness, current economic trends, and changes in customer payment history when evaluating the adequacy of the allowance for doubtful accounts. Accounts receivable are written off against the allowance when there is substantive evidence that the account will not be paid.

Revenue Recognition

Revenue Recognition

The Company generally bills an insurance carrier, a clinic or a patient for the test upon delivery of the test result. The Company also bills patients directly for out-of-pocket costs not covered by their insurance carriers representing co-pays and deductibles in accordance with their insurance carrier and health plans. The Company may not get reimbursed for tests completed if the tests are not covered under the insurance carrier’s reimbursement policies or the Company is not a qualified provider to the insurance carrier. For tests performed, where an agreed upon reimbursement rate or fixed fee and a predictable history or likelihood of collections exists, the Company recognizes revenues upon delivery of the test report to the prescribing physician based on the established billing rate less contractual and other adjustments, such as an allowance for doubtful accounts, to arrive at the amount that the Company expects to collect. In all other situations, as the Company does not have a sufficient history of collection and is not able to determine collectability, the Company recognizes revenues when cash is received. From time to time, we receive requests for refunds of payments previously made by insurance carriers. The Company has established an accrued liability for potential refund requests based on our experience.

In cases where the Company sells its tests through its laboratory partners, the majority of the laboratory partners bill the patient, clinic, or insurance carrier for the performance of the Company's tests.

For tests sold through a limited number of its laboratory partners, the Company bills directly to a patient, clinic or insurance carrier, or a combination of the insurance carrier and patient for the fees. The Company considers its services rendered when it delivers reports of its test results to the laboratory partner, clinic or patient. When the Company has contracted fixed rates for its services and collectability of its revenues is reasonably assured, it recognizes revenues upon delivery of test reports. The fixed fees identified in contracts with laboratory partners change only if a pricing amendment is agreed upon between both parties. For cases in which there is no fixed price established with a laboratory partner, the Company then recognizes revenues from partner distributed tests on a cash basis.

Certain of the Company's arrangements include multiple deliverables. For revenue arrangements with multiple deliverables, the Company evaluates each deliverable to determine whether it qualifies as a separate unit of accounting. This determination is based on whether the deliverable has "stand-alone value" to the customer and whether a general right of return exists. The consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling price of each deliverable. The consideration allocated to each unit of accounting is recognized as the related goods or services are delivered, limited to the consideration that is not contingent upon future deliverables. The Company uses judgment in identifying the deliverables in its arrangements, assessing whether each deliverable is a separate unit of accounting, and in determining the best estimate of selling price for certain deliverables. The Company also uses judgment in determining the period over which the deliverables are recognized in certain of its arrangements. Any amounts received that do not meet the criteria for revenue recognition are recorded as deferred revenue until such criteria are met.

The Company receives royalty revenue through the licensing and the provisioning of services to support the use of the Company's proprietary technology with its customer. Royalty revenues are recognized when earned under the terms of the related agreements and are included in Other Revenues in the statements of operations.

The Company recognizes revenue from the cloud-based distribution service offering. The Company grants customers licenses to use the Company’s proprietary intellectual properties and the cloud-based Natera software, and provides the other services to support the use of the Company's proprietary technology with its customers. Natera’s proprietary software is used in connection with the analysis of DNA sequence data in a manner yielding a result indicating the likely presence or absence of full or partial chromosomal abnormalities. The licensees do not have the right to possess Natera software, but rather are treated as software as a service. The revenues are recognized on an accrual basis (assuming all revenue recognition criteria are met) under the terms of the related agreements and are included in other revenues in the statements of operation.

Cost of Product Revenues

Cost of Product Revenues

Cost of product revenues includes the cost of materials, direct labor of laboratory personnel, equipment and infrastructure expenses associated with processing blood and other samples, quality control analyses, and shipping charges to transport samples and specimens from ordering physicians, clinics or individuals. Infrastructure expenses include allocated facility and related occupancy costs. Costs associated with the performance of diagnostic services are recorded as tests are processed. Costs associated with grants received are reported in research and development expenses.

Research and Development

Research and Development

The Company records research and development costs in the period incurred. Research and development costs consist of personnel costs, contract services, cost of materials utilized in performing tests, costs of clinical trials and allocated facilities and related overhead expenses.

Advertising Costs

Advertising Costs

The Company expenses advertising costs as incurred. The Company incurred advertising costs of $1.1 million, $1.1 million and $0.4 million during 2015, 2014 and 2013, respectively.

Product Shipment Costs

Product Shipment Costs

The Company expenses product shipment costs in cost of product revenues in the accompanying statements of operations. Shipping and handling costs for the years ended December 31, 2015, 2014 and 2013 were $7.0 million, $4.5 million and $2.0 million, respectively.

Income Taxes

Income Taxes

Income taxes are recorded in accordance with Financial Accounting Standards Board ASC Topic 740, Income Taxes ("ASC 740"), which provides for deferred taxes using an asset and liability approach. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Tax benefits are recognized when it is more likely than not that a tax position will be sustained during an audit. Deferred tax assets are reduced by a valuation allowance if current evidence indicates that it is considered more likely than not that these benefits will not be realized.

Stock Based Compensation

Stock‑Based Compensation

Stock‑based compensation related to stock options granted to the Company’s employees is measured at the grant date based on the fair value of the award. The fair value is recognized as expense over the requisite service period, which is generally the vesting period of the respective awards. No compensation cost is recognized on stock options for employees who do not render the requisite service and therefore forfeit their rights to the stock options. The Company uses the Black‑Scholes option‑pricing model to estimate the fair value of its stock options.

The Company accounts for stock options issued to non-employees based on the estimated fair value of the awards using the Black-Scholes option-pricing model. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest, and the resulting change in value, if any, is recognized in the Company's statements of operations during the period that the related services are rendered.

The Black-Scholes option-pricing model requires the input of the Company's expected stock price volatility, the expected life of the awards, a risk-free interest rate, and expected dividends. Determining these assumptions requires significant judgment. The expected term was based on the simplified method and where the Company did not qualify to use the simplified method, the Company used the lattice model, and the volatility rate was based on that of publicly traded companies in the DNA sequencing, diagnostics, or personalized medicine industries. When selecting the public companies in these industries to be used in the volatility calculation, companies were selected with comparable characteristics to the Company, including enterprise value and financial leverage. Companies were also selected with historical share price volatility sufficient to meet the expected life of the Company's stock options. The historical volatility data was computed using the daily closing prices for the selected companies' shares during the equivalent period of the calculated expected term of the Company's stock options. The expected life of the non-employee option grants was based on their remaining contractual life at the measurement date. The risk-free interest rate assumption was based on U.S. Treasury instruments with maturities that were consistent with the option's expected life. The expected dividend assumption was based on the Company's history and expectation of dividend payouts.

Warrants

Warrants

The Company accounts for warrants to purchase shares of its common stock as a liability at fair value on the balance sheet date because the Company may be obligated to redeem these warrants at some point in the future. The warrants are subject to remeasurement at each balance sheet date, with changes in fair value recognized as a gain or loss from the changes in fair value of the warrants in the statements of operations. The Company will continue to adjust the liability for changes in fair value until such time that the warrants are converted or expire.

Capitalized Software Held for Internal Use

Capitalized Software Held for Internal Use

We capitalize costs of software held for internal use during the application development stage of a project and amortize those costs over their estimated useful lives of three years. The net book value of capitalized software held for internal use was $0.8 million and $0 as of December 31, 2015 and 2014, respectively.Amortized expense for amounts previously capitalized for the year ended December 31, 2015 was $0.2 million.

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

Comprehensive loss and its components encompass all changes in equity other than those with stockholders, and include net loss, unrealized gains and losses on available-for-sale marketable securities. As of December 31, 2015 and 2014, accumulated other comprehensive loss consisted of $1.4 million and nil of unrealized losses on available-for-sale marketable securities. There were no reclassifications out of accumulated other comprehensive loss during years ended December 31, 2015 and 2014

Property and Equipment

Property and Equipment

Property and equipment, including purchased and internally developed software, are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which are generally three years. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the assets or the remaining term of the lease, whichever is shorter. The Company periodically reviews the depreciable lives assigned to property and equipment placed in service and change the estimates of useful lives to reflect the results of such reviews. During April 2015, the Company increased the depreciable lives of certain sequencing and automation machinery equipment from three years to five years. The effect of this change in estimate for the year ended December 31, 2015 was a decrease in loss from operations and net loss of  $1.7 million, respectively. The effect of this change in estimate was a decrease in net basic and diluted loss per share of $0.07 for the year ended December 31, 2015.

Inventory

Inventory

Inventory is valued at the lower of the standard cost, which approximates actual cost, or market. Cost is determined using the first-in, first-out ("FIFO") method. Inventory consisted entirely of supplies, which are consumed when providing its test reports, and therefore does not maintain any finished goods inventory. The Company enters into inventory purchases and commitments so that it can meet future delivery schedules based on forecasted demand for its tests.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed below, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

In August 2014, FASB issued Accounting Standards Update No. 2014‑15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014‑15). ASU 2014‑15 requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. In doing so, companies will have reduced diversity in the timing and content of footnote disclosures compared to footnote disclosures under today’s guidance. ASU 2014‑15 is effective for the Company in the first quarter of 2016 with early adoption permitted. The Company does not believe the impact of adopting ASU 2014‑15 on its financial statements will be significant.

In May 2014, FASB issued Accounting Standards Update No. 2014‑09, Revenue from Contracts with Customers (ASU 2014‑09) to provide guidance on revenue recognition. ASU 2014‑09 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09 for all entities by one year. ASU 2014-09 is effective for the Company in the first quarter of 2018. ASU 2014-09, as amended by ASU 2015-14, is effective for the Company in the fiscal year beginning after December 15, 2017, and interim periods within those years with early adoption permitted up to the first quarter of 2017. Upon adoption, ASU 2014‑09 can be applied retrospectively to all periods presented or only to the most current period presented with the cumulative effect of changes reflected in the opening balance of retained earnings in the most current period presented. The Company is currently evaluating the impact of adopting ASU 2014‑09 on its financial statements.

In April 2015, FASB issued Accounting Standards Update No. 2015‑03, Interest—Imputation of Interest (Subtopic 835‑30): Simplifying the Presentation of Debt Issuance Costs (ASU 2015‑03). ASU 2015‑03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015‑03 is effective for the Company in the first quarter of 2016 with early adoption permitted. The Company does not believe the impact of adopting ASU 2015‑03 on its financial statements will be significant.

In April 2015, FASB issued Accounting Standards Update No. 2015‑05, Intangibles—Goodwill and Other—Internal‑Use Software (Subtopic 350‑40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (ASU 2015‑05). ASU 2015‑05 provides guidance to clarify the customer’s accounting for fees paid in a cloud computing arrangement. ASU 2015‑05 is effective for the Company in the first quarter of 2016 with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2015‑05 on its financial statements.

In July 2015, FASB issued Accounting Standards Update No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (ASU 2015-11). ASU 2015-11 simplifies the subsequent measurement of inventory by replacing today’s lower of cost or market test with a lower of cost and net realizable value test. ASU 2015-11 is effective for the Company in the fiscal year beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2015‑11 on its financial statements.

In November 2015, FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred taxes by requiring that deferred tax assets and liabilities be presented as noncurrent on the balance sheet. ASU 2015-17 is effective for the Company in the fiscal year beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2015‑17 on its financial statements.

In February 2016, the FASB issued ASU No. 2016-2, Leases. ASU 2016-2 is aimed at making leasing activities more transparent and comparable, and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. ASU 2016-2 is effective for the Company in the fiscal year beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2016-2 on its financial statements.

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Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2015

Summary of financial assets and liabilities measured on recurring basis

	December 31, 2015								December 31, 2014
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
	(in thousands)
Financial Assets:
Money market deposits	$	5,966	$	—	$	—	$	5,966	$	—	$	—	$	—	$	—
U.S. Treasury securities		103,813		—		—		103,813		—		—		—		—
U.S. agency securities		—		78,853		—		78,853		—		—		—		—
Municipal securities		—		18,920		—		18,920
Total financial assets	$	109,779	$	97,773	$	—	$	207,552	$	—	$	—	$	—	$	—
Current Liabilities:
Warrants	$	—	$	—	$	3,649	$	3,649	$	—	$	—	$	2,232	$	2,232
Long-term Liabilities:
Senior secured term loan	$	—	$	—	$	—	$	—	$	—	$	—	$	20,964	$	20,964
Total financial liabilities	$	—	$	—	$	3,649	$	3,649	$	—	$	—	$	23,196	$	23,196

Summary of quantitative information about inputs and valuation methodologies

					Weighted Average
					Interest on
	Fair Value at			Significant	Discount Rate
	December 31, 2015		Valuation Methodology	Unobservable Input	(range, if applicable)
	(in thousands)				(in thousands)
—Warrants	$	3,649	Black-Scholes Option Pricing Model	Volatility		79.6	%

Warrants

Rollforward of fair value determined by Level 3 inputs

	Warrants
	2015		2014
	(in thousands)
Beginning balance	$	2,232	$	568
Warrants exercised		(240)		—
Change in fair value		1,657		1,664
Ending balance	$	3,649	$	2,232

Long-term Debt

Rollforward of fair value determined by Level 3 inputs

	Term Loan
	2015		2014
	(in thousands)
Beginning balance	$	20,964	$	21,082
Change in fair value recognized in non-operating expense		(964)		(118)
Loan payment		(20,000)		—
Ending balance	$	—	$	20,964

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Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2015

Financial Instruments

Schedule of available-for-sale securities

	December 31, 2015								December 31, 2014
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized (Loss)		Estimated Fair Value		Amortized Cost		Gross Unrealized Gain		Gross Unrealized (Loss)		Estimated Fair Value
	(in thousands)
Money market deposits	$	5,966	$	—	$	—	$	5,966	$	—	$	—	$	—	$	—
U.S. Treasury securities		104,537		1		(725)		103,813		—		—		—		—
U.S. agency securities		79,491		—		(638)		78,853		—		—		—		—
Municipal securities		18,974		2		(56)		18,920
Total	$	208,968	$	3	$	(1,419)	$	207,552	$	—	$	—	$	—	$	—
Classified as:
Cash equivalents							$	5,966							$	—
Short-term investments								201,586								—
Total							$	207,552							$	—

Summarized portfolio of available-for-sale securities by contractual maturity

	December 31, 2015
	Amortized Cost		Fair Value
	(in thousands)
Less than one year	$	55,128	$	55,010
Greater than one year but less than five years		153,840		152,542
Total	$	208,968	$	207,552

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Balance Sheet Components (Tables)

12 Months Ended

Dec. 31, 2015

Balance Sheet Components

Schedule of allowance for doubtful accounts

	December 31,		December 31,
	2015		2014
	(in thousands)
Beginning balance	$	527	$	508
Provision for estimated bad debts		529		349
Write offs		(85)		(330)
Ending balance	$	971	$	527

Schedule of property and equipment

		December 31,		December 31,
	Useful Life	2015		2014
		(in thousands)
Machinery and equipment	3-5 years	$	20,670	$	18,632
Furniture and fixtures	3 years		217		217
Computer equipment	3 years		911		700
Capitalized software held for internal use	3 years		1,037		—
Leasehold improvements	Life of lease		1,686		1,036
Construction-in-process			1,979		3,583
			26,500		24,168
Less: Accumulated depreciation and amortization			(13,790)		(9,594)
Total Property and Equipment, net		$	12,710	$	14,574

Schedule of accrued compensation

	December 31,		December 31,
	2015		2014
	(in thousands)
Accrued paid time off	$	2,024	$	1,577
Accrued commissions		3,691		2,651
Accrued bonuses		1,348		1,141
Other accrued compensation		1,489		611
Total accrued compensation	$	8,552	$	5,980

Schedule of other accrued liabilities

	December 31,		December 31,
	2015		2014
	(in thousands)
Accrued expenses	$	17,870	$	8,560
Accrued rent		450		551
Deferred lease obligation		42		99
Accrued interest		—		764
Sales tax payable		346		367
Total other accrued liabilities	$	18,708	$	10,341

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2015

Commitments and Contingencies

Schedule of future minimum lease payments

	Operating Leases
	(in thousands)
Year ending December 31:
2016	$	3,212
2017		5,442
2018		5,976
2019		6,140
2020		6,304
2021 and thereafter		25,922
Total future minimum lease payments	$	52,996

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Stock‑Based Compensation (Tables)

12 Months Ended

Dec. 31, 2015

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Summary of stock option activity

	Outstanding Options
					Weighted-
			Weighted-		Average
	Shares		Average		Remaining	Aggregate
	Available for	Number of	Exercise		Contractual	Intrinsic
(in thousands, except for contractual life and exercise price)	Grant	Shares	Price		Life	Value
					(In years)
Balance at December 31, 2014	294	8,463	$	2.28	8.83	$	43,659
Additional shares authorized	4,985	—
Options granted	(2,181)	2,181	$	10.16
Options exercised	—	(683)	$	1.72
Options forfeited	645	(645)	$	5.25
Balance at December 31, 2015	3,743	9,316	$	3.96	8.31	$	63,713
Exercisable at December 31, 2015		5,602	$	1.90	5.31	$	49,880
Vested and expected to vest at December 31, 2015		8,414	$	3.72	7.32	$	59,529

Summary of stock-based compensation expenses

	Year ended December 31,
	2015						2014						2013
	Employee		Non-Employee		Total		Employee		Non-Employee		Total		Employee		Non-Employee		Total
	(in thousands)
Cost of revenues	$	351	$	241	$	592	$	262	$	29	$	291	$	55	$	7	$	62
Research and development		1,566		9		1,575		1,563		30		1,593		612		4		616
Selling, general and administrative		4,993		166		5,159		3,180		93		3,273		970		9		979
Total	$	6,910	$	416	$	7,326	$	5,005	$	152	$	5,157		1,637	$	20	$	1,657

Employee stock options

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of assumptions used in valuation of fair value of employee stock options

	Year ended December 31,
	2015					2014					2013
Expected term	5.6		—	10.0		4.91		—	7.06		6.0
Expected volatility	69.7	%	—	78.8	%	73.4	%	—	87.0	%	63.7	%	—	85.7	%
Expected dividend rate				0	%				0	%				0	%
Risk-free interest rate	1.56	%	—	2.32	%	1.65	%	—	2.04	%	0.44	%	—	2.86	%

Non-employee stock options

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of assumptions used in valuation of fair value of employee stock options

	Year ended December 31,
	2015					2014					2013
Expected term	4.9		—	9.8		4.4		—	10.0		8.4
Expected volatility	70.2	%	—	75.4	%	71.9	%	—	80.2	%	75.6	%	—	81.5	%
Expected dividend rate				0	%				0	%				0	%
Risk-free interest rate	1.74	%	—	2.24	%	1.41	%	—	2.61	%	1.44	%	—	2.51	%

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Convertible Preferred Stock (Tables)

12 Months Ended

Dec. 31, 2015

Convertible Preferred Stock.

Schedule of convertible preferred stock

	Shares	Shares Issued and	Liquidation		Proceeds, net of
Series	Authorized	Outstanding	Amount		Issuance Costs
	(in thousands)
A-1	5,000	3,067	$	20	$	20
A	8,173	5,014		4,005		3,927
B	5,745	3,491		6,600		6,569
C	8,941	5,485		12,160		58,876
D	6,694	4,107		20,047		80,788
E	9,592	5,884		35,425		35,019
F	7,088	4,349		55,500		55,413
	51,233	31,397	$	133,757	$	240,612

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2015

Income Taxes

Schedule of effective tax rates differing from U.S. federal statutory rate

	December 31,
	2015				2014
	(in thousands, except percentages)
U.S. federal taxes (benefit) at statutory rate	$	(24,375)	(34.00)	%	$	(1,747)	(34.00)	%
State tax expense		(2,428)	(3.39)	%		(294)	(5.72)	%
Research and development credits		(751)	(1.05)	%		(530)	(10.32)	%
Stock-based compensation		1,683	2.35	%		755	14.70	%
Mark to market fair value adjustments		504	0.70	%		566	11.01	%
Other nondeductible items		841	1.17	%		414	8.05	%
Change in valuation allowance		24,526	34.21	%		851	16.57	%
Provision for income taxes	$	—	—	%	$	15	0.29	%

Schedule of tax effects of temporary differences that give rise to significant portions of the deferred tax assets

	December 31,
	2015		2014
	(in thousands)
Deferred tax assets
Net operating loss carryforwards	$	41,451	$	21,587
Research and development tax credit carryforwards		4,794		2,696
Reserves and accruals		3,108		1,717
Stock-based compensation		2,206		1,505
Total deferred tax assets before valuation allowance		51,559		27,505
Less: valuation allowance		(51,153)		(26,627)
		406		878
Deferred tax liabilities
Property and equipment		(406)		(878)
Net deferred tax assets	$	—	$	—

Schedule of reconciliation of the beginning and ending amount of gross unrecognized tax benefits

	December 31,
	2015		2014
	(in thousands)
Balance at beginning of year	$	1,360	$	898
Additions based on tax positions related to the current year		1,045		462
Additions for tax positions of prior years		—		—
Balance at end of year	$	2,405	$	1,360

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Net Loss per Share (Tables)

12 Months Ended

Dec. 31, 2015

Net Loss per Share

Basic and diluted net loss per common share

	Year ended December 31,
(in thousands, except per share data)	2015		2014		2013
Basic and diluted loss per share:
Net loss	$	(70,275)	$	(5,152)	$	(37,110)
Net loss attributable to common shares, basic and diluted		(70,275)		(5,152)		(37,110)
Weighted-average common shares outstanding		27,687		6,670		6,093
Less:  weighted-average unvested common shares subject to repurchase		(1,483)		(1,870)		(2,252)
Weighted-average number of shares used in computing net loss per share, basic and diluted		26,204		4,800		3,841
Basic and diluted net loss per share	$	(2.68)	$	(1.07)	$	(9.66)

Potentially dilutive shares not included in the calculation of dilutive EPS

	Year ended December 31,
	2015	2014	2013
Options to purchase common stock	9,316	8,450	4,406
Warrants to purchase common stock	377	864	410
Common stock subject to repurchase	1,307	1,690	2,077
Convertible preferred stock	—	31,397	27,048
	11,000	42,401	33,941

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Geographic Information (Tables)

12 Months Ended

Dec. 31, 2015

Geographic Information

Schedule of total revenue by geographic area

	Year ended December 31,
(in thousands)	2015		2014		2013
United States	$	164,952	$	136,478	$	48,263
Americas, excluding U.S.		4,552		4,883		1,402
Europe, Middle East, India, Africa		15,437		13,098		4,275
Other		5,414		4,830		1,231
Total	$	190,355	$	159,289	$	55,171

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Quarterly Financial Data (Tables)

12 Months Ended

Dec. 31, 2015

Quarterly Financial Data

Schedule of quarterly financial data

		Three months ended
		December 31,		September 30,		June 30,		March 31,
		(in thousands, except per share data)
2015
Operating results:
Total revenues	$	52,912	$	44,921	$	45,087	$	47,435
Cost of product revenues		31,814		30,456		25,732		24,843
Gross profit		21,098		14,465		19,355		22,592
Other costs and expenses		38,446		35,206		34,827		28,869
Interest expense and other income (expense), net		(5,612)		3,111		(4,209)		(3,727)
Net loss		(22,960)		(17,630)		(19,681)		(10,004)
Per share data:
Net income - basic and diluted	$	(0.47)	$	(0.39)	$	(3.58)	$	(1.89)
2014
Operating results:
Total revenues	$	49,884	$	46,274	$	35,836	$	27,295
Cost of product revenues		22,662		20,820		19,014		15,900
Gross profit		27,222		25,454		16,822		11,395
Other costs and expenses		22,849		20,675		18,027		18,677
Interest expense and other income (expense), net		(3,119)		(1,055)		691		(2,334)
Net income (loss)		1,254		3,724		(514)		(9,616)
Per share data:
Net income - basic	$	-	$	0.04	$	(0.11)	$	(2.09)
Net income - diluted		-		0.03		(0.11)		(2.09)

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Description of Business (Details) $ / shares in Units, $ in Millions		1 Months Ended	12 Months Ended
	Jun. 19, 2015	Jul. 31, 2015 USD ($) $ / shares shares	Dec. 31, 2015 segment $ / shares shares
Number of operating segment | segment			1
Stock split conversion	0.6135
Common stock
Initial public offering (in shares) | shares			10,900,000
Initial public offering price (in dollars per share) | $ / shares			$ 11.57
IPO | Common stock
Initial public offering (in shares) | shares		10,900,000
Initial public offering price (in dollars per share) | $ / shares		$ 18.00
Proceeds from initial public offering, net of offering costs | $		$ 178.5

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Summary of Significant Accounting Policies (Additional Capital) (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Policies
Net (loss) income	$ (22,960)	$ (17,630)	$ (19,681)	$ (10,004)	$ 1,254	$ 3,724	$ (514)	$ (9,616)	$ (70,275)	$ (5,152)	$ (37,110)
Accumulated deficit	250,083				179,808				250,083	179,808
Cash and cash equivalents	28,947				87,176				28,947	87,176	$ 30,496	$ 5,747
Short-term investments	201,586								201,586
Restricted cash
Restricted cash, current portion	901				503				901	503
Restricted cash, long term portion	683				$ 808				683	$ 808
Corporate Headquarters Lease
Restricted cash
Restricted cash, current portion	800								800
Restricted cash, long term portion	300								300
Cancellation of Service
Restricted cash
Restricted cash, current portion	100								100
Credit Card
Restricted cash
Restricted cash, long term portion	$ 400								$ 400

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Summary of Significant Accounting Policies (Concentration) (Details) - customer	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Sales | Customer
Risk and Uncertainties
Number of customers	0	0	2
Sales | Customer | Quest
Risk and Uncertainties
Concentration risk (as a percent)			16.00%
Sales | Customer | Progenity
Risk and Uncertainties
Concentration risk (as a percent)			12.00%
Accounts Receivable | Credit
Risk and Uncertainties
Number of customers	0	0	2
Accounts Receivable | Credit | Customer one
Risk and Uncertainties
Concentration risk (as a percent)			37.00%
Accounts Receivable | Credit | Customer two
Risk and Uncertainties
Concentration risk (as a percent)			18.00%

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Summary of Significant Accounting Policies (Costs) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Summary of Significant Accounting Policies
Advertising costs	$ 1,100	$ 1,100	$ 400
Shipping and handling costs	7,000	4,500	$ 2,000
Capitalized software	800	0
Capitalized software expense	200
Accumulated other comprehensive loss	1,416
Reclassifications out of accumulated other comprehensive loss	$ 0	$ 0

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Summary of Significant Accounting Policies (Property) (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	3 Months Ended								12 Months Ended
	Apr. 30, 2015	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Property and Equipment
Estimated useful life										P3Y
Gain (loss) from operations										$ (59,838)	$ 665	$ (25,268)
Net loss		$ 22,960	$ 17,630	$ 19,681	$ 10,004	$ (1,254)	$ (3,724)	$ 514	$ 9,616	$ 70,275	$ 5,152	$ 37,110
Basic and diluted net loss per share (in dollars per share)		$ (0.47)	$ (0.39)	$ (3.58)	$ (1.89)					$ (2.68)	$ (1.07)	$ (9.66)
Machinery and equipment | Change to estimated useful life
Property and Equipment
Estimated useful life	P3Y									P5Y
Net loss										$ 1,700
Basic and diluted net loss per share (in dollars per share)										$ (0.07)

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Fair Value Measurements (Hierarchy) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Transfers between Levels 1 and 2
Fair Value, Assets, Level 1 to Level 2 Transfers, Amount	$ 0	$ 0
Fair Value, Assets, Level 2 to Level 1 Transfers, Amount	0	0
Fair Value, Liabilities, Level 1 to Level 2 Transfers, Amount	0	0
Fair Value, Liabilities, Level 2 to Level 1 Transfers, Amount	0	0
Transfers into and out of Level 3
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset Transfers Into Level 3	0	0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Transfers out of Level 3	0	0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Liability, Transfers Into Level 3	0	0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Liability, Transfers out of Level 3	0	0
Recurring
Financial Assets:
Total financial assets	207,552,000
Current Liabilities:
Warrants	3,649,000	2,232,000
Long‑term Liabilities:
Senior secured term loan		20,964,000
Total financial liabilities	3,649,000	23,196,000
Recurring | Money market deposits
Financial Assets:
Total financial assets	5,966,000
Recurring | U.S. Treasury securities
Financial Assets:
Total financial assets	103,813,000
Recurring | U.S. agency securities
Financial Assets:
Total financial assets	78,853,000
Recurring | Municipal securities
Financial Assets:
Total financial assets	18,920,000
Recurring | Level 1
Financial Assets:
Total financial assets	109,779,000
Recurring | Level 1 | Money market deposits
Financial Assets:
Total financial assets	5,966,000
Recurring | Level 1 | U.S. Treasury securities
Financial Assets:
Total financial assets	103,813,000
Recurring | Level 2
Financial Assets:
Total financial assets	97,773,000
Recurring | Level 2 | U.S. agency securities
Financial Assets:
Total financial assets	78,853,000
Recurring | Level 2 | Municipal securities
Financial Assets:
Total financial assets	18,920,000
Recurring | Level 3
Current Liabilities:
Warrants	3,649,000	2,232,000
Long‑term Liabilities:
Senior secured term loan		20,964,000
Total financial liabilities	$ 3,649,000	$ 23,196,000

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Fair Value Measurements (Level III) (Details) - USD ($) $ in Thousands	1 Months Ended	12 Months Ended
	Oct. 31, 2015	Dec. 31, 2015	Dec. 31, 2014
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Loss on debt extinguishment		$ (7,313)
Secured Loan Arrangement
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Loss on debt extinguishment	$ (2,000)	2,000
Royalty Agreement
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Loss on debt extinguishment		5,300
Long-term Debt | Secured Loan Arrangement
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning balance		20,964	$ 21,082
Settled		(20,000)
Ending balance			20,964
Long-term Debt | Non‑Operating Expense | Secured Loan Arrangement
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Change in fair value		(964)	(118)
Warrants
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning balance		2,232	568
Change in fair value		1,657	1,664
Settled		(240)
Ending balance		$ 3,649	$ 2,232

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Fair Value Measurements (Assumptions) (Details) $ in Thousands	3 Months Ended	9 Months Ended	12 Months Ended
	Dec. 31, 2015 USD ($) company	Sep. 30, 2015 company	Dec. 31, 2015 USD ($)
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Volatility, basket of companies | company	4	15
Warrants
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Volatility (as a percent)			79.60%
Warrant valuation increase	$ 200
Warrants | Level 3
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Warrants	$ 3,649		$ 3,649

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Financial Instruments (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2015 USD ($) position
Available-for-sale Securities, Fair Value to Amortized Cost Basis [Abstract]
Estimated Fair Value	$ 201,586
Interest income	$ 300
Number of investments, unrealized loss position | position	73
Amortized Cost
Less than one year	$ 55,128
Greater than one year but less than five years	153,840
Total	208,968
Fair Value
Less than one year	55,010
Greater than one year but less than five years	152,542
Total	207,552
Available-for-sale securities
Available-for-sale Securities, Fair Value to Amortized Cost Basis [Abstract]
Cost	208,968
Unrealized Gain	3
Unrealized Loss	(1,419)
Estimated Fair Value	207,552
Money market deposits
Available-for-sale Securities, Fair Value to Amortized Cost Basis [Abstract]
Cost	5,966
Estimated Fair Value	5,966
U.S. Treasury securities
Available-for-sale Securities, Fair Value to Amortized Cost Basis [Abstract]
Cost	104,537
Unrealized Gain	1
Unrealized Loss	(725)
Estimated Fair Value	103,813
U.S. agency securities
Available-for-sale Securities, Fair Value to Amortized Cost Basis [Abstract]
Cost	79,491
Unrealized Loss	(638)
Estimated Fair Value	78,853
Municipal securities
Available-for-sale Securities, Fair Value to Amortized Cost Basis [Abstract]
Cost	18,974
Unrealized Gain	2
Unrealized Loss	(56)
Estimated Fair Value	18,920
Cash equivalents | Available-for-sale securities
Available-for-sale Securities, Fair Value to Amortized Cost Basis [Abstract]
Estimated Fair Value	5,966
Short-term investments | Available-for-sale securities
Available-for-sale Securities, Fair Value to Amortized Cost Basis [Abstract]
Estimated Fair Value	$ 201,586

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Balance Sheet Components (Allowance for Doubtful Accounts) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Allowance for doubtful accounts
Beginning balance	$ 527	$ 508
Provision for estimated bad debts	529	349	$ 527
Write offs	(85)	(330)
Ending balance	$ 971	$ 527	$ 508

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Balance Sheet Components (Property) (Details) - USD ($)	1 Months Ended	3 Months Ended	12 Months Ended
	Jan. 31, 2016	Dec. 31, 2015	Dec. 31, 2015	Dec. 31, 2014	Sep. 30, 2015
Property and Equipment, net
Property and equipment, gross		$ 26,500,000	$ 26,500,000	$ 24,168,000
Less: Accumulated depreciation and amortization		(13,790,000)	(13,790,000)	(9,594,000)
Total Property and Equipment, net		12,710,000	12,710,000	14,574,000
Impairment of assets			1,557,000
Proceeds from sale of impaired machinery and equipment			463,000	15,000
Equipment pledged					$ 0
Machinery and equipment
Property and Equipment, net
Property and equipment, gross		20,670,000	20,670,000	18,632,000
Impairment of assets			1,000,000
Proceeds from sale of impaired machinery and equipment		500,000
Asset held for sale		200,000	200,000
Machinery and equipment | Subsequent Event
Property and Equipment, net
Proceeds from sale of impaired machinery and equipment	$ 200,000
Furniture and fixtures
Property and Equipment, net
Property and equipment, gross		217,000	$ 217,000	217,000
Useful Life			3 years
Computer equipment
Property and Equipment, net
Property and equipment, gross		911,000	$ 911,000	700,000
Useful Life			3 years
Capitalized software held for internal use
Property and Equipment, net
Property and equipment, gross		1,037,000	$ 1,037,000
Useful Life			3 years
Leasehold improvements
Property and Equipment, net
Property and equipment, gross		1,686,000	$ 1,686,000	1,036,000
Construction-in-process
Property and Equipment, net
Property and equipment, gross		$ 1,979,000	$ 1,979,000	$ 3,583,000
Minimum | Machinery and equipment
Property and Equipment, net
Useful Life			3 years
Maximum | Machinery and equipment
Property and Equipment, net
Useful Life			5 years

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Balance Sheet Components (Compensation) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Balance Sheet Components
Accrued paid time off	$ 2,024	$ 1,577
Accrued commissions	3,691	2,651
Accrued bonuses	1,348	1,141
Other accrued compensation	1,489	611
Total accrued compensation	$ 8,552	$ 5,980

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Balance Sheet Components (Accured liab) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Balance Sheet Components
Accrued expenses	$ 17,870	$ 8,560
Accrued rent	450	551
Deferred lease obligation	42	99
Accrued interest		764
Sales tax payable	346	367
Total other accrued liabilities	$ 18,708	$ 10,341

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Commitments and Contingencies (Details)	1 Months Ended			12 Months Ended
	Oct. 31, 2015 USD ($) ft² item	Sep. 30, 2015 USD ($)	Apr. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)	Mar. 21, 2014 USD ($)	Jan. 31, 2013 USD ($)
Future minimum lease payments
2016				$ 3,212,000
2017				5,442,000
2018				5,976,000
2019				6,140,000
2020				6,304,000
2021 and thereafter				25,922,000
Total future minimum lease payment				52,996,000
Rent expense				$ 2,700,000	$ 1,500,000	$ 1,300,000
Corporate Headquarters Lease
Operating Leases
Restricted cash							$ 300,000	$ 800,000
Monthly base rent	$ 200,000
Security deposit	500,000
Allowance for leasehold improvements	$ 400,000
Number of office spaces | item	2
Office space | ft²	88,000
Renewal term of lease	5 years
Redwood City Lease
Operating Leases
Monthly base rent			$ 100,000
Security deposit			$ 100,000
Austin TX, Long-term Lease
Operating Leases
Term of lease		132 months
Monthly base rent		$ 100,000
Security deposit		400,000
Maximum monthly base rent after escalation		200,000
Allowance for leasehold improvements		$ 7,800,000
Austin TX, Short-term Lease
Operating Leases
Term of lease	1 year
Monthly base rent	$ 12,900
Security deposit	12,900
Maximum | Corporate Headquarters Lease
Operating Leases
Monthly base rent	$ 400,000

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Commitments and Contingencies (Legal) (Details) $ in Millions			1 Months Ended
	Feb. 17, 2016	Jun. 02, 2015 USD ($)	Aug. 31, 2015 USD ($)	Nov. 30, 2013 item	Mar. 31, 2016 lawsuit	Dec. 31, 2015 USD ($)	Jan. 31, 2015 USD ($)
Inventory Material
Other commitments
Purchase commitment						$ 12.2
Tests
Other commitments
Purchase commitment							$ 5.1
Supplier One | Inventory Material
Other commitments
Purchase commitment						12.2
Supplier, Aggregate of Other | Inventory Material
Other commitments
Purchase commitment						$ 1.5
Patent infringement
Other commitments
Number of judgements appealed | item				3
Third-party payer
Other commitments
Amount sought		$ 1.9
Settlement amount			$ 1.2
Subsequent Event | IPO claims
Other commitments
Shareholders (as a percent)	5.00%
Number of purported class action lawsuits filed | lawsuit					2

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Stock‑Based Compensation (Details)	1 Months Ended	12 Months Ended
	Jun. 30, 2015 USD ($) period shares	Dec. 31, 2015 USD ($) $ / shares shares
2015 Plan
Stock Based Compensation
Shares reserved for issuance	3,451,495	3,743,382
Shares reserved for issuance as a proportion common stock outstanding (as a percent)	4.00%
Automatic termination of plan, term		10 years
2015 Plan | Non-employee directors
Stock Based Compensation
Aggregate grant date fair value of awards granted, annual ceiling limitation amount | $	$ 500,000
2015 Plan | Newly appointed non-employee directors
Stock Based Compensation
Aggregate grant date fair value of awards granted, annual ceiling limitation amount | $	$ 1,000,000
2015 Plan | Minimum
Stock Based Compensation
Shares reserved for issuance	3,500,000
2007 Plan
Stock Based Compensation
Shares reserved for issuance		15,258,947
Automatic termination of plan, term		10 years
2015 Employee Stock Purchase Plan
Stock Based Compensation
Shares reserved for issuance	893,548
Shares reserved for issuance as a proportion common stock outstanding (as a percent)	1.00%
Price in relation to fair market value of common stock on the date of grant, lower range limit (as a percent)	85.00%
Maximum amount of award or purchase during a calendar year | $	$ 25,000
Requisite service requirement (in hours per week)	20 hours
Requisite service requirement (in months per year)	5 months
Maximum offering period, term	27 months
Number of expected offering periods each year | period	2
Offering period, expected term	6 months
Maximum employee contribution of employee's cash compensation (as a percent)	15.00%
Maximum aggregate amount of shares a participant may receive during the fiscal year | $	$ 5,000
2015 Employee Stock Purchase Plan | Minimum
Stock Based Compensation
Shares reserved for issuance	880,000
Employee and non-employee stock options | 2015 Plan
Stock Based Compensation
Price in relation to fair market value of common stock on the date of grant, lower range limit (as a percent)	100.00%
Vesting period	4 years
Expiration period	10 years
Maximum number of shares a participant may receive during the fiscal year (in shares)	1,725,000
Additional number of shares a new employee may receive during initial fiscal year of employment (in shares)	350,000
Employee and non-employee stock options | 2007 Plan
Stock Based Compensation
Price in relation to fair market value of common stock on the date of grant, lower range limit (as a percent)		100.00%
Vesting period		4 years
Expiration period		10 years
Stock options, exercise price range, number outstanding (in shares)		8,621,395
Stock options, exercise price range, lower range limit (in dollars per share) | $ / shares		$ 0.0065
Stock options, exercise price range, upper range limit (in dollars per share) | $ / shares		12.8501
Stock options, exercise price range, weighted-average exercise price (in dollars per share) | $ / shares		$ 3.27
Shares exercised and unvested		1,300,000
Period after Market Stand-off repurchase right expires		210 days
Accelerated stock-based compensation expense | $		$ 1,300,000
Stock appreciation rights | 2015 Plan
Stock Based Compensation
Price in relation to fair market value of common stock on the date of grant, lower range limit (as a percent)	100.00%
Vesting period	4 years
Expiration period	10 years
Maximum number of shares a participant may receive during the fiscal year (in shares)	1,725,000
Additional number of shares a new employee may receive during initial fiscal year of employment (in shares)	350,000
Restricted shares and stock Units | 2015 Plan
Stock Based Compensation
Maximum number of shares a participant may receive during the fiscal year (in shares)	1,500,000
Additional number of shares a new employee may receive during initial fiscal year of employment (in shares)	300,000
Performance awards | 2015 Plan
Stock Based Compensation
Maximum amount of award or purchase during a calendar year | $	$ 5,000,000

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Stock‑Based Compensation (Options) (Details) - Employee and non-employee stock options - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Stock Based Compensation
Shares available for grant, beginning balance	294
Additional shares authorized	4,985
Options granted (in shares)	(2,181)
Options forfeited (in shares)	645
Shares available for grant, end balance	3,743	294
Number of shares
Outstanding, beginning balance (in shares)	8,463
Options granted (in shares)	2,181
Options exercised (in shares)	(683)
Options forfeited (in shares)	(645)
Outstanding, end balance (in shares)	9,316	8,463
Exercisable (in shares)	5,602
Vested and expected to vest (in shares)	8,414
Weighted-Average Exercise Price
Outstanding, beginning balance (in dollars per shares)	$ 2.28
Granted (in dollars per share)	10.16
Exercised (in dollars per share)	1.72
Forfeited (in dollars per share)	5.25
Outstanding, end balance (in dollars per shares)	3.96	$ 2.28
Exercisable (in dollars per share)	1.90
Vested and expected to vest (in dollars per share)	$ 3.72
Additional disclosures
Weighted average contractual term, options outstanding	8 years 3 months 22 days	8 years 9 months 29 days
Exercisable (in years)	5 years 3 months 22 days
Vested and expected to vest (in years)	7 years 3 months 26 days
Aggregate intrinsic value, options outstanding	$ 63,713	$ 43,659
Aggregate intrinsic value, options exercisable	49,880
Aggregate intrinsic value, vested and expected to vest	59,529
Aggregate intrinsic value, options exercised	6,900	1,200	$ 700
Fair value, options vested	$ 4,500	$ 4,100	$ 1,000
Weighted-average grant date fair value, options granted	$ 7.29	$ 3.28	$ 0.99

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Stock‑Based Compensation (CompExp) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Employee and non-employee stock options
Stock based compensation expense
Stock based compensation expense	$ 7,326	$ 5,157	$ 1,657
Unrecognized compensation expense	$ 14,700
Unrecognized compensation expense recognized over weighted average period	1 year 11 months 16 days
Employee and non-employee stock options | Cost of revenues
Stock based compensation expense
Stock based compensation expense	$ 592	291	62
Employee and non-employee stock options | Research and development
Stock based compensation expense
Stock based compensation expense	1,575	1,593	616
Employee and non-employee stock options | Selling, general and administrative
Stock based compensation expense
Stock based compensation expense	5,159	3,273	979
Employee stock options
Stock based compensation expense
Stock based compensation expense	6,910	5,005	1,637
Employee stock options | Cost of revenues
Stock based compensation expense
Stock based compensation expense	351	262	55
Employee stock options | Research and development
Stock based compensation expense
Stock based compensation expense	1,566	1,563	612
Employee stock options | Selling, general and administrative
Stock based compensation expense
Stock based compensation expense	4,993	3,180	970
Non-employee stock options
Stock based compensation expense
Stock based compensation expense	416	152	20
Non-employee stock options | Cost of revenues
Stock based compensation expense
Stock based compensation expense	241	29	7
Non-employee stock options | Research and development
Stock based compensation expense
Stock based compensation expense	9	30	4
Non-employee stock options | Selling, general and administrative
Stock based compensation expense
Stock based compensation expense	$ 166	$ 93	$ 9

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Stock‑Based Compensation (Assumptions) (Details) - shares shares in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Employee and non-employee stock options
Stock Based Compensation
Options granted (in shares)	2,181
Employee stock options
Valuation of Stock Option Grants to Employees
Expected term			6 years
Expected volatility, minimum	69.70%	73.40%	63.70%
Expected volatility, maximum	78.80%	87.00%	85.70%
Expected dividend rate	0.00%	0.00%	0.00%
Risk‑free interest rate, minimum	1.56%	1.65%	0.44%
Risk‑free interest rate, maximum	2.32%	2.04%	2.86%
Employee stock options | Minimum
Valuation of Stock Option Grants to Employees
Expected term	5 years 7 months 6 days	4 years 10 months 28 days
Employee stock options | Maximum
Valuation of Stock Option Grants to Employees
Expected term	10 years	7 years 22 days
Non-employee stock options
Stock Based Compensation
Options granted (in shares)	200
Options unvested (in shares)	100
Valuation of Stock Option Grants to Employees
Expected term			8 years 4 months 24 days
Expected volatility, minimum	70.20%	71.90%	75.60%
Expected volatility, maximum	75.40%	80.20%	81.50%
Expected dividend rate	0.00%	0.00%	0.00%
Risk‑free interest rate, minimum	1.74%	1.41%	1.44%
Risk‑free interest rate, maximum	2.24%	2.61%	2.51%
Non-employee stock options | Minimum
Valuation of Stock Option Grants to Employees
Expected term	4 years 10 months 24 days	4 years 4 months 24 days
Non-employee stock options | Maximum
Valuation of Stock Option Grants to Employees
Expected term	9 years 9 months 18 days	10 years

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Debt (Details) $ / shares in Units, $ in Thousands	1 Months Ended					12 Months Ended
	Nov. 30, 2015 USD ($)	Oct. 31, 2015 USD ($)	Sep. 30, 2015 USD ($)	Dec. 31, 2014 USD ($) item	Apr. 30, 2013 USD ($) $ / shares shares	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($) item	Dec. 31, 2013 USD ($)	Apr. 30, 2014 $ / shares	Dec. 31, 2007 $ / shares
Debt Instrument [Line Items]
Interest expense						$ 3,505	$ 4,219	$ 1,873
Royalty due						1,800
Exercise price of warrants (in dollars per share) | $ / shares										$ 0.0978
Prepayment penalty						7,313
Repayments of equipment financing						$ 5,850	$ 2,480	$ 475
Secured Loan Arrangement
Debt Instrument [Line Items]
Effective interest rate (as a percent)				19.80%		20.90%	19.80%	12.60%
Number of shares of common stock that may be called by warrants | shares					376,691
Exercise price of warrants (in dollars per share) | $ / shares					$ 2.3229				$ 2.3229
Prepayment premium (as a percent)		10.00%			10.00%
Debt paid off		$ 20,000
Amount paid to extinguish debt		28,000
Prepayment penalty		2,000				$ (2,000)
Credit Agreement
Debt Instrument [Line Items]
Borrowing capacity					$ 40,000
Borrowings					$ 20,000
Base interest rate (as a percent)					1.00%
Spread on base interest rate (as a percent)					8.00%
Interest rate floor (as a percent)					9.00%
Interest expense						1,400	$ 1,800	$ 1,300
Minimum liquidity required under debt covenants					$ 5,000
Royalty Agreement
Debt Instrument [Line Items]
Royalty payment percentage owed on fiscal year revenues up to threshold					1.00%
Revenue threshold amount for determination of royalty payment percentage					$ 50,000
Royalty payment percentage owed on fiscal year revenues in excess of threshold					1.50%
Interest expense		6,000				7,100	$ 2,200	$ 500
Prepayment penalty						$ (5,300)
Line Of Credit-UBS
Debt Instrument [Line Items]
Borrowing capacity			$ 50,000
Borrowings	$ 10,000	$ 32,000
Effective interest rate (as a percent)	0.85%	0.84%
Line Of Credit-UBS | 30-day LIBOR
Debt Instrument [Line Items]
Spread on variable rate (as a percent)			0.65%
Equipment Financing Facility
Debt Instrument [Line Items]
Borrowing capacity					$ 5,000
Borrowings				$ 5,900
Effective interest rate (as a percent)				6.35%	7.35%		6.35%
Number of payment installments | item				30			30
Repayments of equipment financing			$ 4,100
Equipment Financing Facility | 30-day LIBOR
Debt Instrument [Line Items]
Spread on reference rate (as a percent)					2.50%
Spread on variable rate (as a percent)					4.10%
Equipment Financing Facility | Prime
Debt Instrument [Line Items]
Spread on reference rate (as a percent)				3.10%

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Warrants (Details)		1 Months Ended	12 Months Ended
	Nov. 20, 2014 $ / shares shares	Jul. 31, 2015 shares	Dec. 31, 2015 $ / shares shares	Apr. 30, 2014 $ / shares shares	Apr. 30, 2013 $ / shares	Dec. 31, 2009 $ / shares shares	Dec. 31, 2007 $ / shares shares
Class of Stock [Line Items]
Warrants outstanding (in shares)							24,538
Warrants exercise price (in dollars per share) | $ / shares							$ 0.0978
Secured Loan Arrangement
Class of Stock [Line Items]
Warrants outstanding (in shares)				376,691
Warrants exercise price (in dollars per share) | $ / shares				$ 2.3229	$ 2.3229
B
Class of Stock [Line Items]
Warrants outstanding (in shares)						33,742
Warrants exercise price (in dollars per share) | $ / shares						$ 1.8908
E
Class of Stock [Line Items]
Warrants outstanding (in shares)	429,440
Warrants exercise price (in dollars per share) | $ / shares	$ 0.0163
Liquidation preference change (as a percent)	2
Common stock
Class of Stock [Line Items]
Closing price (in dollars per share) | $ / shares			$ 11.57
Conversion into common shares (in shares)			31,397,000
Common stock | B
Class of Stock [Line Items]
Common stock issued for each warrant (in shares)		1	28,227
Common stock | E
Class of Stock [Line Items]
Conversion into common shares (in shares)		429,042

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Convertible Preferred Stock (Details) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2014 USD ($) director $ / shares shares	Dec. 31, 2015 $ / shares shares	Jul. 31, 2015 shares	Dec. 31, 2013 $ / shares
Stock
Convertible preferred stock, shares outstanding | shares	31,397,000		31,397,221
Common stock, shares authorized | shares	82,000,000	750,000,000
Preferred stock, shares authorized | shares	50,000,000	50,000,000
Common stock, par value (in dollars per share) | $ / shares	$ 0.0001	$ 0.0001
Preferred stock, par value (in dollars per share) | $ / shares	$ 0.0001	$ 0.0001
Liquidation Amount	$ 133,757
Proceeds, net of Issuance Costs	240,612
Minimum IPO price for automatic conversion	$ 40,000
Minimum holder consenting to automatic conversion (as a percent)	70.00%
Maximum recapitalization for automatic conversion	$ 100,000
Convertible preferred stock
Stock
Convertible preferred stock, shares outstanding | shares	31,397,000
Preferred stock, shares authorized | shares	51,233,000
Liquidation Amount	$ 133,757
Proceeds, net of Issuance Costs	$ 240,612
A-1
Stock
Convertible preferred stock, shares outstanding | shares	3,067,000
Preferred stock, shares authorized | shares	5,000,000
Liquidation Amount	$ 20
Proceeds, net of Issuance Costs	$ 20
Convertible preferred stock conversion numerator (in dollars per share) | $ / shares	$ 0.0065
Convertible preferred stock conversion denominator (in dollars per share) | $ / shares	$ 0.0065
Dividend rate (as a percent)	0.0005%
A
Stock
Convertible preferred stock, shares outstanding | shares	5,014,000
Preferred stock, shares authorized | shares	8,173,000
Liquidation Amount	$ 4,005
Proceeds, net of Issuance Costs	$ 3,927
Convertible preferred stock conversion numerator (in dollars per share) | $ / shares	$ 0.7987
Convertible preferred stock conversion denominator (in dollars per share) | $ / shares	$ 0.7987
Dividend rate (as a percent)	0.0639%
B
Stock
Convertible preferred stock, shares outstanding | shares	3,491,000
Preferred stock, shares authorized | shares	5,745,000
Liquidation Amount	$ 6,600
Proceeds, net of Issuance Costs	$ 6,569
Convertible preferred stock conversion numerator (in dollars per share) | $ / shares	$ 1.8908
Convertible preferred stock conversion denominator (in dollars per share) | $ / shares	$ 1.8908
Dividend rate (as a percent)	0.1513%
C
Stock
Convertible preferred stock, shares outstanding | shares	5,485,000
Preferred stock, shares authorized | shares	8,941,000
Liquidation Amount	$ 12,160
Proceeds, net of Issuance Costs	$ 58,876
Convertible preferred stock conversion numerator (in dollars per share) | $ / shares	$ 2.2168
Convertible preferred stock conversion denominator (in dollars per share) | $ / shares	$ 2.2168
Number of directors electable | director	1
Number of directors elected | director	0
Dividend rate (as a percent)	0.1773%
D
Stock
Convertible preferred stock, shares outstanding | shares	4,107,000
Preferred stock, shares authorized | shares	6,694,000
Liquidation Amount	$ 20,047
Proceeds, net of Issuance Costs	$ 80,788
Convertible preferred stock conversion numerator (in dollars per share) | $ / shares	$ 4.8819
Convertible preferred stock conversion denominator (in dollars per share) | $ / shares	$ 4.8819
Dividend rate (as a percent)	0.3911%
E
Stock
Convertible preferred stock, shares outstanding | shares	5,884,000
Preferred stock, shares authorized | shares	9,592,000
Liquidation Amount	$ 35,425
Proceeds, net of Issuance Costs	$ 35,019
Convertible preferred stock conversion numerator (in dollars per share) | $ / shares	$ 6.0199			$ 6.02
Convertible preferred stock conversion denominator (in dollars per share) | $ / shares	$ 6.0199
Dividend rate (as a percent)	0.4817%
F
Stock
Convertible preferred stock, shares outstanding | shares	4,349,000
Preferred stock, shares authorized | shares	7,088,000
Liquidation Amount	$ 55,500
Proceeds, net of Issuance Costs	$ 55,413
Convertible preferred stock conversion numerator (in dollars per share) | $ / shares	$ 12.7629
Convertible preferred stock conversion denominator (in dollars per share) | $ / shares	$ 12.7629
Dividend rate (as a percent)	1.021%
A and B
Stock
Number of directors electable | director	2

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Common Stock (Details) shares in Thousands		12 Months Ended
	Jun. 19, 2015	Dec. 31, 2015 item $ / shares shares	Dec. 31, 2014 $ / shares shares
Common Stock.
Authorized common stock (in shares)		750,000	82,000
Common stock, par value (in dollars per share) | $ / shares		$ 0.0001	$ 0.0001
Common stock outstanding (in shares)		50,346	6,879
Number of votes | item		1
Stock split conversion	0.6135

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Income Taxes (Effective Tax Rates) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Effective tax rates differing from U.S. federal statutory rate
U.S. Federal taxes (Benefit) at statutory rate	$ (24,375)	$ (1,747)
State tax expense	(2,428)	(294)
Research and development credits	(751)	(530)
Stock-based compensation	1,683	755
Mark to market fair value adjustments	504	566
Other nondeductible items	841	414
Change in valuation allowance	$ 24,526	851
Provision for income taxes		$ 15
U.S. Federal taxes (Benefit) at statutory rate (as a percent)	(34.00%)	(34.00%)
State tax expense (as a percent)	(3.39%)	(5.72%)
Research and development credits (as a percent)	(1.05%)	(10.32%)
Stock-based compensation (as a percent)	2.35%	14.70%
Mark to market fair value adjustments (as a percent)	0.70%	11.01%
Other nondeductible items (as a percent)	1.17%	8.05%
Change in valuation allowance (as a percent)	34.21%	16.57%
Provision for income taxes (as a percent)		0.29%
State income tax expense		$ 15

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Income Taxes (Deferred Tax Assets) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Income Taxes
Valuation allowance increase	$ 24,500	$ 900	$ 10,800
Deferred tax assets
Net operating loss carryforwards	41,451	21,587
Research and development tax credit carryforwards	4,794	2,696
Reserves and accruals	3,108	1,717
Stock based compensation	2,206	1,505
Total deferred tax assets before valuation allowance	51,559	27,505
Less: valuation allowance	(51,153)	(26,627)
Deferred tax assets, net	406	878
Deferred tax liabilities
Property and equipment	$ (406)	$ (878)

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Income Taxes (Net Operating Loss Carryforwards) (Details) $ in Millions	12 Months Ended
	Dec. 31, 2015 USD ($)
Operating Loss Carryforwards [Line Items]
Excess tax benefits from employee stock option exercises, equity increase	$ 1.4
Federal
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	114.5
State
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	$ 73.2

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Income Taxes (Tax Credit Carryforwards) (Details) $ in Millions	Dec. 31, 2015 USD ($)
Tax Credit Carryforward [Line Items]
Taxable income required for full realization of deferred tax assets	$ 138.8
Federal | Research and development tax credit carryforward
Tax Credit Carryforward [Line Items]
Tax credit carryforward	4.6
State | Research and development tax credit carryforward
Tax Credit Carryforward [Line Items]
Tax credit carryforward	$ 3.4

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Income Taxes (Unrecognized Tax Benefits) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Interest and penalties accrued	$ 0
Reconciliation of the beginning and ending amount of gross unrecognized tax benefits
Balance at beginning of year	1,360	$ 898
Additions based on tax positions related to the current year	1,045	462
Balance at end of year	2,405	1,360
Research and development tax credit carryforward
Unrecognized tax benefits increased	$ 1,000	$ 500

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Related‑Party Transactions (Details) - USD ($)	1 Months Ended	12 Months Ended
	Apr. 30, 2012	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Dr Rabinowitz | Apartment rent
Related‑Party Transactions
Related party cost expensed		$ 9,500	$ 22,800	$ 22,642
Dr Rabinowitz | Notes Receivable from Officers
Related‑Party Transactions
Note receivable	$ 154,000
Note receivable interest rate (as a percent)	1.15%
Mr Sheena | Notes Receivable from Officers
Related‑Party Transactions
Note receivable	$ 38,280
Note receivable interest rate (as a percent)	1.15%

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Net Loss per Share (EPS) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Basic and diluted loss per share:
Net loss	$ (22,960)	$ (17,630)	$ (19,681)	$ (10,004)	$ 1,254	$ 3,724	$ (514)	$ (9,616)	$ (70,275)	$ (5,152)	$ (37,110)
Net loss attributable to common shares, basic and diluted									$ (70,275)	$ (5,152)	$ (37,110)
Weighted-average common shares outstanding									27,687	6,670	6,093
Less: weighted-average unvested common shares subject to repurchase									(1,483)	(1,870)	(2,252)
Weighted-average number of shares used in computing net loss per share, basic and diluted									26,204	4,800	3,841
Basic and diluted net loss per share (in dollars per share)	$ (0.47)	$ (0.39)	$ (3.58)	$ (1.89)					$ (2.68)	$ (1.07)	$ (9.66)

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Net Loss per Share (AntiDil) (Details) - shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potentially dilutive shares not included in the calculation of diluted EPS	11,000	42,401	33,941
Employee and non-employee stock options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potentially dilutive shares not included in the calculation of diluted EPS	9,316	8,450	4,406
Warrants to purchase common stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potentially dilutive shares not included in the calculation of diluted EPS	377	864	410
Common stock subject to repurchase
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potentially dilutive shares not included in the calculation of diluted EPS	1,307	1,690	2,077
Redeemable convertible preferred stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potentially dilutive shares not included in the calculation of diluted EPS		31,397	27,048

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Geographic Information (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 52,912	$ 44,921	$ 45,087	$ 47,435	$ 49,884	$ 46,274	$ 35,836	$ 27,295	$ 190,355	$ 159,289	$ 55,171
United States
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues									164,952	136,478	48,263
Americas, excluding U.S.
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues									4,552	4,883	1,402
Europe, Middle East, India, Africa
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues									15,437	13,098	4,275
Other
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues									$ 5,414	$ 4,830	$ 1,231

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Quarterly Financial Data (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Operating results:
Total revenues	$ 52,912	$ 44,921	$ 45,087	$ 47,435	$ 49,884	$ 46,274	$ 35,836	$ 27,295	$ 190,355	$ 159,289	$ 55,171
Cost of product revenues	31,814	30,456	25,732	24,843	22,662	20,820	19,014	15,900	112,845	78,396	37,275
Gross profit	21,098	14,465	19,355	22,592	27,222	25,454	16,822	11,395
Other costs and expenses	38,446	35,206	34,827	28,869	22,849	20,675	18,027	18,677
Interest expense and other income (expense), net	(5,612)	3,111	(4,209)	(3,727)	(3,119)	(1,055)	691	(2,334)
Net (loss)	$ (22,960)	$ (17,630)	$ (19,681)	$ (10,004)	$ 1,254	$ 3,724	$ (514)	$ (9,616)	$ (70,275)	$ (5,152)	$ (37,110)
Per share data:
Net income - basic and diluted (in dollars per share)	$ (0.47)	$ (0.39)	$ (3.58)	$ (1.89)					$ (2.68)	$ (1.07)	$ (9.66)
Net income - basic (in dollars per share)						$ 0.04	$ (0.11)	$ (2.09)
Net income - diluted (in dollars per share)						$ 0.03	$ (0.11)	$ (2.09)