Basis of Presentation and Consolidation

On May 30, 2014, the Company sold its Bioscience business segment. As a result of this sale, the Company's Bioscience segment has been excluded from continuing operations for all periods herein and reported as discontinued operations. For additional information on the divestiture of the Company's Bioscience segment, see Note 4 Discontinued Operations.

Prior to the divestiture, the Company derived revenue from two business segments: Sequenom Laboratories and Sequenom Bioscience. Therefore, with the reported divestiture the Company operates in a single business segment and all prior period information herein has been recast to conform to this presentation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Examples of the Company’s significant accounting estimates that may involve a higher degree of judgment and complexity than others include revenue recognition and the estimates required in accrual accounting. Actual results could differ materially from those estimates and assumptions.

Revenue Recognition

The Company generates revenue primarily from diagnostic services from providing laboratory-developed tests, or LDTs, primarily for the detection of specific fetal abnormalities or other genetic conditions, as well as other amounts earned for royalties and license agreements.

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. The Company assesses whether the fee is fixed or determinable based on the nature of the fee charged for the services delivered, whether there are existing contractual arrangements, and historical payment patterns. In determining when to record revenue, the Company evaluates collectability and considers whether there is sufficient history to reliably estimate a payor's individual payment patterns. Revenue is deferred for fees received before earned. Royalty revenue is generally recorded on an accrual basis when earned.

Diagnostic services revenue is recognized upon cash collection until we can reliably estimate the amount that would be ultimately collected for the test and the above criteria have been met, at which time revenue is recognized on an accrual basis. The Company generally bills third-party payors upon generation and delivery of a test result to the ordering physician following completion of a test. As such, the Company takes assignment of benefits and risk of collection with the third-party payor. Patients have out-of-pocket costs for amounts not covered by their insurance carrier and the Company bills the patient directly for these amounts in the form of co-pays and deductibles in accordance with their insurance carrier and health plans. Some payors may not cover the test as ordered by the physician under their reimbursement policies. Consequently, the Company pursues reimbursement on a case-by-case basis.

License arrangements may involve multiple elements and the Company evaluates the agreements to determine whether each deliverable represents a separate unit of accounting. A deliverable constitutes a separate unit of accounting when it has stand-alone value to the customer. Items are considered to have stand-alone value when they are sold separately by any vendor or when the customer could resell the item on a stand-alone basis. Consideration is allocated at the inception of the contract to all deliverables based on their relative selling price. The relative selling price for each deliverable is determined using vendor specific objective evidence (VSOE) of selling price or third-party evidence of selling price if VSOE does not exist. If neither VSOE nor third-party evidence exists, the Company uses its best estimate of the selling price for the deliverable. Such amounts are recognized as revenue when each unit is delivered.

If the delivered element does not have stand-alone value without one of the undelivered elements in the arrangement, the elements are combined and accounted for as a single unit of accounting. Such amounts are recognized as revenue when the last deliverable of the combined units is delivered.

Cost of revenue includes the cost of materials, direct labor (including laboratory and service personnel), equipment and infrastructure expenses associated with processing blood and other samples, quality control analyses, shipping charges to transport samples, and license fees. Infrastructure expenses include allocated facility occupancy and information technology costs. Costs associated with performing testing services are recorded as tests are processed. Costs recorded for sample processing and shipping charges represent the cost of all the tests processed during the period regardless of whether revenue is recognized with respect to that test. Royalties for licensed technology calculated on a per test basis or as a percentage of product revenue and fixed annual payments relating to the launch and commercialization of LDTs are recorded as license fees in cost of revenue at the time product revenue is recognized or in accordance with other contractual obligations.

Research and development expenses are comprised of costs incurred to develop technology and carry out clinical studies and include salaries and benefits, reagents and supplies used in research and development laboratory work, infrastructure expenses, including allocated facility occupancy and information technology costs, contract services, and other outside costs. Research and development costs are expensed as incurred.

Costs for collaboration and clinical study agreements with collaborators are recorded as research and development expenses. Accruals are recorded for estimated study costs comprised of work performed by collaborators under contract terms. Advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized and recognized as expense as the goods are delivered or the related services are performed.

Collaboration, Development and Licensing Agreement Expenses

The Company has collaborative agreements with life sciences partners that provide rights to develop, produce, and market products using certain know-how, technology and patent rights maintained by these partners. Terms of the various collaboration agreements may require milestone payments upon the achievement of certain product research and development objectives and payment of royalties on future sales, if any, of commercial products resulting from the collaboration.

Concentration of Risks

Financial instruments, which potentially are a concentration of credit risk, consist primarily of cash, cash equivalents, marketable securities, and accounts receivable. The exposure to credit loss is limited by placing cash, cash equivalents and marketable securities with US financial institutions. Additionally, the Company has established guidelines regarding diversification of investments and their maturities, which are designed to maintain principal and maximize liquidity. Credit risk with respect to accounts receivable is limited due to the Company's large and diverse customer base.

Fair Value Measurements

Financial instruments consist principally of cash, cash equivalents, short-term marketable securities, accounts receivable, accounts payable, accrued expenses, long term debt and the Company's 5.00% Convertible Senior Notes due 2017, or Convertible Senior Notes.

The carrying amounts of financial instruments such as cash equivalents, accounts receivable, accounts payable and accrued expenses approximate the related fair values due to the short-term maturities of these instruments. Marketable securities consist of available-for-sale securities that are reported at fair value.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Accounting guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

The Company determines the value of cash equivalents and marketable securities using quoted market prices or alternative pricing sources and models utilizing observable market inputs and, as such, classifies cash equivalents and marketable securities within Level 1 or Level 2.

Cash, Cash Equivalents, and Marketable Securities

Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less at the time of purchase.

Investments with an original maturity of more than three months at the time of purchase are considered marketable securities. All marketable securities have been classified by management as available-for-sale. The available-for-sale securities are carried at fair value, with unrealized gains and losses, determined on a specific identification basis, reported as a component of other comprehensive income (loss) in stockholders' deficit until realized.

A decline in the market value of any marketable security below cost that is determined to be other-than-temporary will result in a revaluation of its carrying amount to fair value. The impairment would be included in other income or expense in the consolidated statements of operations and a new cost basis for the security would be established. There were no such declines in market value of any marketable security in the periods presented.

Accounts Receivable

Diagnostic services revenue is recorded on an accrual basis for payors and tests that meet the revenue recognition criteria for accrual basis and for client bill arrangements, which are primarily labs and international customers, upon delivery of test results to ordering physicians where a contractual agreement exits and for which collectability is reasonably assured.

The Company considers receivables past due based on payment terms and reserves specific receivables if collectability is no longer reasonably assured. The Company evaluates such reserves on a regular basis and adjusts its reserves as needed. Once a receivable is deemed to be uncollectible, such balance is charged against the reserve.

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or market value (net realizable value). Provisions for slow moving, excess and obsolete inventories are estimated based on future demands and product life cycles, including expiration.

Property, Equipment and Leasehold Improvements

Financing Lease

For accounting purposes only, the Company is deemed to be the owner of the leased building in Raleigh-Durham, North Carolina, laboratory site as the terms of that facility lease agreement required extensive involvement in the construction of the building. Accordingly, assets were recorded representing the fair value of the building based on the assessed value and the total costs of the improvements, including the costs paid by the lessor (the legal owner of the building), with an associated long-term obligation. Upon completion of construction of the building, the sale-leaseback criteria was not met for de-recognition of the building assets and obligation. Therefore the lease is accounted for as a long-term financing obligation. The Company reports rent expense only on the land portion of the property but not for the building which is owned by the Company for accounting purposes. Rather, building rental payments under the lease are recognized as a reduction of the financing obligation and interest expense.

Intangible assets that have finite useful lives consist of purchased patent rights and licenses. These intangible assets are being amortized over the expected economic use of the assets.

Goodwill represents the excess purchase price of net tangible and identifiable intangible assets acquired in business combinations over their estimated fair value. The allocation of purchase price for acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values. Goodwill is deemed to have an indefinite life and, therefore, is not amortized.

Goodwill is tested for impairment at the reporting unit level during the fourth quarter each fiscal year, or more frequently if indicators of impairment are present. If goodwill is considered to be impaired, the impairment recognized is equal to the amount by which the carrying value of the reporting units goodwill exceeds the implied fair value of that goodwill.

The Company periodically re-evaluates the original assumptions and rationale utilized in the establishment of the carrying value and estimated lives of long-lived assets and finite-lived intangible assets. Long-lived assets and finite-lived intangibles are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an asset is considered to be impaired, the impairment recognized is equal to the amount by which the carrying value of the asset exceeds its fair value.

Share-Based Compensation

The Company measures and recognizes compensation expense for all share-based payments made to employees, directors, and consultants based on estimated fair value, net of estimated forfeitures. These share-based awards include stock options, restricted stock and restricted stock units, and stock purchase rights under the Company's employee stock purchase plan. The fair value of stock options granted and stock purchase rights is estimated using the Black-Scholes-Merton ("BSM"), option-pricing model and for market-based grants the Monte Carlo simulation model is used. These models require the use of estimates such as stock price volatility and expected option lives, as well as expected option forfeiture rates, to value employee share-based compensation at the date of grant or modification. The fair value of restricted stock awards and restricted stock units is based on the market price of the Company's common stock on the date of grant.

Share-based compensation cost is recognized on a straight-line basis over the requisite service period of the award or, in the case of market-based awards, on an accelerated basis, over the greater of the vesting period or derived service period. Share-based compensation expense is recognized only for those awards that are ultimately expected to vest for awards with only a service condition. For stock option modifications, the Company compares the fair value of the original award immediately before and after the modification. For Type I modifications, or probable-to-probable vesting conditions, the incremental fair value of fully vested awards is recognized as expense on the date of the modification, with the incremental fair value of unvested awards recognized ratably over the new service period. Forfeitures are estimated at the time of grant and revised if necessary, in subsequent periods, if actual forfeitures differ from those estimates. Changes in forfeiture estimates impact compensation cost in the period in which the change in estimate occurs.

Due to a net loss carryforward position, no tax benefits for share-based compensation have been recognized in the consolidated statements of cash flows. The Company has not recognized, and does not expect to recognize in the near future, any tax benefit related to share-based compensation cost as a result of the full valuation allowance of the Company's net deferred tax assets and net operating loss carryforwards.

The fair value of options granted to non-employees is estimated at the measurement date using the BSM pricing model and remeasured at each reporting date to fair value, with changes in fair value recognized as expense in the statement of operations and comprehensive income (loss).

During the year ended December 31, 2013, the Company announced and executed a restructuring plan to exit its marketing of RetnaGene AMD LDT, reduce the Company’s workforce and not to move into a leased facility. The Company measured and accrued the liabilities associated with employee separation costs at fair value as of the date the plan was announced and terminations were communicated to employees, which primarily consisted of severance pay and other separation costs such as outplacement services and benefits.

The fair value measurement of restructuring related liabilities requires certain assumptions and estimates to be made by the Company, such as the retention period of certain employees, the timing and amount of sublease income on the property, and the operating costs to be paid until lease termination. The Company’s policy is to use its best estimates based on facts and circumstances available at the time of measurement, review the assumptions and estimates periodically, and adjust the liabilities when necessary.

We recognize excess tax benefits associated with share-based compensation to stockholders' equity only when realized. When assessing whether excess tax benefits relating to share-based compensation have been realized, we follow the with-and-without approach, excluding any indirect effects of the excess tax deductions. Under this approach, excess tax benefits related to share-based compensation are not deemed to be realized until after the utilization of all other tax benefits available to us.

We recognize the impact of a tax position in our financial statements only if we believe that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Any interest and penalties related to uncertain tax positions will be reflected in income tax expense.

Accumulated Other Comprehensive Income (Loss)

Comprehensive loss and its components encompasses all changes in equity other than those with stockholders, and includes net loss, unrealized gains and losses on available-for-sale marketable securities and foreign currency translation adjustments.

Functional Currency

The U.S. dollar is the functional currency of the Company’s international operations. The Company remeasures its foreign subsidiaries’ monetary assets and liabilities to the U.S. dollar and records the net gains or losses resulting from remeasurement in other expense, net in the consolidated statements of operations.

Net Earnings (Loss) Per Share

Basic and diluted net loss per common share for the periods presented is computed by dividing net loss by the weighted-average number of common shares outstanding during the respective periods, without consideration of common stock equivalents. Common stock equivalents, determined on a weighted-average, that could potentially reduce net earnings per common share in the future that were not included in the determination of diluted earnings (loss) per common share as their effects were antidilutive are as follows (in thousands):

The control number for determining whether to present potential dilutive common shares in the diluted EPS computation is income from continuing operations. As a result, if there is a loss from continuing operations, diluted EPS would be computed in the same manner as basic EPS is computed, even if we report net earnings after including discontinued operations.

Recently Adopted Accounting Pronouncements

In June 2014, the Financial Accounting Standards Board, or FASB, issued an accounting standards update that requires a performance target that affects vesting of a share-based payment award and that could be achieved after the requisite service period to be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized over the required service period, if it is probable that the performance target will be achieved. This guidance will be effective for fiscal years beginning after December 15, 2015, which will be the Company's fiscal year 2016, with early adoption permitted. The Company does not expect the adoption of the guidance will have a material impact on the Company's consolidated financial statements.

In May 2014, the FASB issued an accounting standards update that creates a single source of revenue guidance for companies in all industries. The new standard provides guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers, unless the contracts are within the scope of other accounting standards. It also provides a model for the measurement and recognition of gains and losses on the sale of certain nonfinancial assets. This guidance must be adopted using either a full retrospective approach for all periods presented or a modified retrospective approach and will be effective for fiscal years beginning after December 15, 2016, which will be the Company's fiscal year 2017. The Company has not yet evaluated the potential impact of adopting the guidance on the Company's consolidated financial statements.

In April 2014, the FASB issued an accounting standards update that raises the threshold for disposals to qualify as discontinued operations and allows companies to have significant continuing involvement with and continuing cash flows from or to the discontinued operation. It also requires additional disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. This guidance will be effective for fiscal years beginning after December 15, 2014, which will be the Company's fiscal year 2015, with early adoption permitted. The Company elected to use the non-amended guidance to evaluate the reported discontinued operations (see footnote 4) and will adopt the new guidance after its effective date.