Notes to Condensed Consolidated Financial Statements

(unaudited)

Foundation Medicine, Inc., and its wholly-owned subsidiaries, Foundation Medicine Securities Corporation and FMI Germany GmbH (collectively, the “Company”), is a molecular information company focused on fundamentally changing the way in which patients with cancer are evaluated and treated. The Company believes an information-based approach to making clinical treatment decisions based on comprehensive genomic profiling will become a standard of care for patients with cancer. The Company derives revenue from selling services that are enabled by its molecular information platform to physicians and biopharmaceutical companies.

The Company’s molecular information services for genomic profiling, FoundationOne CDx, an FDA-approved broad companion diagnostic assay for solid tumors, FoundationOne for solid tumors, FoundationOneHeme for hematologic malignancies and sarcomas, FoundationACT, a blood-based (liquid biopsy) assay to measure circulating tumor DNA (“ctDNA”), and FoundationFocus CDx BRCA , an FDA-approved, companion diagnostic assay to aid in identifying women with ovarian cancer for whom treatment with Rubraca™ (rucaparib) is being considered, are widely available comprehensive genomic profiles designed for use in the routine care of patients with cancer. Following the FDA’s approval of FoundationOne CDx in November 2017, the Centers for Medicare & Medicaid Services (“CMS”) issued a final National Coverage Determination, or NCD, in March 2018 that establishes nationwide Medicare coverage for FoundationOne CDx for all solid tumor types when ordered by the patient’s treating physician for Medicare beneficiaries with advanced cancer ( i.e. , either recurrent, relapsed, refractory, metastatic, or advanced stages III or IV cancer), who either have not been previously tested using FoundationOne CDx for the same primary diagnosis of cancer or are seeking repeat testing with FoundationOne CDx for a new primary cancer diagnosis, and continue to seek further cancer therapy.

To accelerate its commercial growth and enhance its competitive advantage, the Company is developing and commercializing new molecular information services for physicians and biopharmaceutical companies, strengthening its commercial organization, introducing new marketing, education and provider engagement efforts, growing its molecular information knowledgebase, called FoundationCORE, pursuing reimbursement from regional and national third-party payors, publishing scientific and medical advances, and fostering relationships throughout the oncology community.

The accompanying condensed consolidated financial statements are unaudited. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments considered normal and recurring and necessary for their fair presentation. Interim results are not necessarily indicative of results to be expected for the year. These interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and footnotes necessary for a complete presentation of financial position, results of operations, comprehensive loss and cash flows. The Company’s audited consolidated financial statements as of and for the year ended December 31, 2017 included information and footnotes necessary for such presentation and were included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 7, 2018. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2017.

Summary of Accounting Policies

The significant accounting policies and estimates used in preparation of the unaudited condensed consolidated financial statements are described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2017, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K. Material changes to the significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 are reflected below.

Revenue Recognition

The Company derives revenue from the provision of molecular information services provided to its ordering physicians and biopharmaceutical customers, as well as from pharma research and development services provided to its biopharmaceutical customers. Molecular information services include molecular profiling and the delivery of other molecular information derived from the Company’s platform. Pharma research and development services include the development of new platforms and information solutions, including companion diagnostic development. The Company currently receives payments from commercial third-party payors, Medicare, certain hospitals and cancer centers with which it has direct-bill relationships, individual patients, and its biopharmaceutical customers. All amounts are due to be paid in accordance with the customers agreed upon payment terms and we have not identified the existence of any significant financing components.

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Effective January 1, 2018, the Company began recogn izing revenue in accordance with FASB ASC Topic 606,  Revenue from Contracts with Customers  (“ASC 606”). The Company adopted ASC 606 utilizing the modified retrospective method, meaning the cumulative effect of applying the standard was recognized to openin g retained earnings as of January 1, 2018 . ASC 606 provides for a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.

Performance Obligations

Molecular Information Services

Clinical

Our clinical contracts included within molecular information services typically have a single performance obligation to transfer molecular profiling services to either a patient or a facility. In certain limited contracted scenarios, such as arrangements with academic medical centers, the transaction price is stated within the contract and is therefore fixed consideration. For most of our clinical volume, we identified the patient as the customer in Step 1 of the model and have determined an implied contract exists with the patient in Step 1. As such, a stated contract price does not exist and the transaction price for each contract represents variable consideration. In developing the estimate of variable consideration, we utilize the expected value method under a portfolio approach. Our estimate requires significant judgment and is developed using historical reimbursement data from payors and patients, as well as known current reimbursement trends not reflected in the historical data. As these contracts typically have a single performance obligation, no allocation of the transaction price is required in Step 4 of the model. Control over molecular information services is transferred to our ordering physicians at a point in time. Specifically, we determined the customer obtains control of the promised service upon our delivery of the test results. Certain incremental costs, such as commissions, are incurred in obtaining clinical contracts. We have elected to utilize the practical expedient to expense incremental costs of obtaining a contract that meet the capitalization criteria, as the amortization period of any contract acquisition asset would be one year or less due to the short-term nature of our clinical contracts.

Biopharma

Our biopharma contracts included within molecular information services may include single or multiple performance obligations depending on the contract, and may include different molecular information service offerings, such as molecular profiling, provision of data through either database queries or subscription access to our platform, and clinical trial enrollment assistance, as separately identifiable from other promises in the contracts and therefore distinct performance obligations.

The transaction price in biopharma molecular information service contracts is typically fixed consideration. In certain instances, contracts may include variable consideration. In these contracts, variable consideration is estimated utilizing the expected value method. The primary method used to determine standalone selling price for the biopharma molecular information services is observable standalone selling price. When standalone selling price is not directly observable, the primary method used to estimate standalone selling price for molecular information services is the adjusted market assessment approach, under which we evaluate the market in which we sell the services and estimate the price that a customer in that market would be willing to pay for those services.

Control over biopharma molecular information services from molecular profiling and database queries is transferred to customers at a point in time. We determined the customer obtains control of the promised service upon delivery of the test results or the delivery of responses to database queries to the biopharma partner. Control over biopharma molecular information services from subscription access to our data platform is transferred to customers ratably over time. We determined that the customer obtains control of the promised service as we host the content throughout the contract term. Control over biopharma molecular information services from clinical trial enrollment assistance is transferred to customers ratably over time. We determined that the customer obtains control of the promised service as we stand ready to perform such services throughout the contract term.

Pharma Research and Development Services

Our biopharma contracts included within pharma research and development services may include single or multiple performance obligations depending on the contract. Research and development (“R&D”) services typically represent a single performance obligation as the Company performs a significant integration service for the individual goods or services in the R&D workstream, such as analytical validation and regulatory submissions. The individual promises are not separately identifiable from other promises in the contracts and, therefore, are not distinct. However, in certain contracts, a partner may engage the Company for multiple distinct R&D workstreams which are both capable of being distinct and separately identifiable from other promises in the contracts and, therefore, distinct performance obligations. Additionally, for regulatory contracts in pursuit of approval of a companion diagnostic assay, the Company identifies a performance obligation for commercial availability of the assay subsequent to obtaining regulatory approval.

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The transaction price can consist of a combination of an upfront fee, performance-based development milestones, cost reimbursement, fixed per sample fees, commercial royalties, and commercial milestones. With the exception of upfront and fixed per sample fees, the other forms of compensation represent variable consideration. Variable consideration in the form of cost reimbursement and commercial royalties is estimated using the expec ted value method. Variable consideration in the form of development and commercial milestones is estimated using the most likely amount method. All variable consideration is constrained such that it is probable a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Application of the constraint for variable consideration to milestone payments is an area that requires significant judgment. In making this assessment, the Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be managed to achieve the respective milestone and the level of effort and investment required to achieve the respective milestone.

The primary method used to estimate standalone selling price for the R&D service performance obligations is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying each performance obligation and then add an appropriate margin for that distinct good or service. The primary method used to estimate standalone selling price for a commercial availability performance obligation is the adjusted market assessment approach, under which we evaluate the market in which we sell the services and estimate the price that a customer in that market would be willing to pay for those services. The estimation of standalone selling price is an area that requires significant judgment, as it impacts the allocation objective in Step 4 of the model. Revenue will be recognized over time for R&D services and commercial availability services. Specifically, for R&D services we will recognize revenue using an input method to measure progress, utilizing costs incurred to-date relative to total expected costs as our measure of progress. For commercial availability services, we will recognize revenue using an input method to measure progress, resulting in a time-elapsed measure of progress.

The Company performs R&D services as part of its normal activities. The Company records payments for these services as Pharma research and development services revenue in the Consolidated Statements of Operations and Comprehensive Loss. The R&D costs incurred by the Company under these arrangements are included as Research and development expenses in the Company’s Consolidated Statements of Operations and Comprehensive Loss given these costs are related to the development of new services to be owned and offered by the Company to its customers.

Significant Judgments and Contract Estimates

Molecular Information Services

For our clinical molecular information services, we have concluded that an implied contract exists with the patient. This is a significant judgment as contract existence is a requirement to applying the general five-step model of ASC 606.

Accounting for clinical revenue contracts includes estimation of the transaction price, defined as the amount we expect to be entitled to receive in exchange for providing the services under the contract. Due to our out-of-network status with the majority of payors, estimation of the transaction price represents variable consideration. In order to estimate variable consideration, we utilize a portfolio approach in which payors with similar reimbursement experience are grouped into portfolios. Our estimates of variable consideration are based primarily on historical reimbursement data. Certain assumptions will also be adjusted based on known and anticipated factors not reflected in the historical reimbursement data. We monitor these accrual estimates at each reporting period based on actual cash collections in order to assess whether a revision to the estimate is required. Both the initial accrual estimate and any subsequent revision to the estimate contain uncertainty and require the use of judgment in the estimation of the transaction price and application of the constraint for variable consideration.

Pharma Research and Development Services

Accounting for biopharma revenue contracts includes several judgments and estimates which impact the timing and pattern of revenue recognition. Specifically, biopharma contracts require evaluation of separability of promised services, estimation of the transaction price, allocation of the transaction price to performance obligations, and estimation of measure of progress toward complete satisfaction for those performance obligations satisfied over time.

Certain biopharma contracts, typically those for pharma R&D services, contain promises to deliver multiple services. The process for evaluating contracts for material promises, in contrast to immaterial promises or administrative tasks, requires judgment. Once material promises have been identified, we then evaluate whether these promises are both capable of being distinct and distinct within the context of the contract. If both of these criteria are satisfied, a separate performance obligation will be identified. If both criteria are not satisfied, certain promises will be combined in the identification of a combined performance obligation. In assessing whether a promised service is capable of being distinct, the Company considers whether the customer could benefit from the service either on its own or together with other resources that are readily available to the customer, including factors such as the research, development, and commercialization capabilities of a third party and the availability of the associated expertise in the general marketplace. In assessing whether a promised service is distinct within the context of the contract, the Company considers whether we provide a significant integration of the services, whether the services significantly modify or customize one another, or whether the services are highly interdependent or interrelated.

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The nature of certain biopharma contracts, primarily contracts for pharma R& D services, requires that the transaction price must be estimated, including application of the constraint to performance-based milestones. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be managed to achieve the respective milestone and the level of effort and investment required to achieve the respective milestone in making this assessment. Application of the constraint is based on our historical experience with similar milestones, the deg ree of complexity and uncertainty associated with each milestone, and whether achievement of the milestone is dep endent on parties other than the Company . The constraint for variable consideration is applied such that it is probable a significant reversal of revenue will not occur when the uncertainty associated with the contingency is resolved. Application of the constraint for variable consideration is updated at each reporting period as a revision to the estimated transaction price.

Once the transaction price has been estimated, the standalone selling price for each identified performance obligation must be determined in order to allocate the transaction price to performance obligations. Observable standalone selling price is used when available. When an observable price is not available, standalone selling price is estimated using either the adjusted market assessment approach or the expected cost plus a margin approach, utilizing the approach which maximizes the use of observable inputs. Under the adjusted market assessment approach, we utilize pricing on historical similar transactions as well as competitor pricing as relevant inputs. Under the expected cost plus a margin approach, we utilize internal cost models for required personnel and sample resources as the relevant inputs.

Lastly, once the transaction price has been allocated to the identified performance obligations, we must determine the timing and pattern of revenue recognition. For certain biopharma services, particularly pharma R&D services satisfied over time, this requires estimation of the total cost pool in order to determine our measure of progress under the input method. This cost pool is the same cost model utilized to estimate standalone selling price under the expected cost plus a margin approach. At the end of each reporting period, we track actual costs incurred in order to measure progress under the input method and recognize revenue accordingly.

For further discussion on the Company’s revenue recognition, refer to Note 4: Revenue and Note 7: Contract Balances.

Reclassifications

Certain reclassifications have been made to the revenue captions of the Condensed Consolidated Statements of Operations and Comprehensive Loss to conform to the current classifications. These reclassifications had no net effect on the Company’s consolidated results.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, 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.

The Company adopted ASU 2014-09 Revenue from Contracts with Customers and all related amendments (collectively codified as ASC 606) on January 1, 2018 utilizing the modified retrospective method, meaning the cumulative effect of applying the standard to all contracts that were not completed as of the date of initial application was recognized to opening retained earnings as of January 1, 2018. The Company identified certain differences in accounting for revenue recognition as a result of adoption of ASC 606 which are expected to have a material impact on its financial position or results of operations. These differences are discussed below and any other identified policy differences are not expected to have a material impact on the Company’s financial position or results of operations.

For molecular information services revenue, the Company identified a difference in accounting for certain revenue arrangements from the application of the new revenue accounting standard as compared to the previous revenue accounting standards. Historically, for certain clinical customers, the Company deferred revenue recognition until cash receipt when the price pursuant to the underlying customer arrangement was not fixed and determinable and collectability was not reasonably assured. Under the new standard, this is considered variable consideration. For these arrangements, the Company will record an estimate of the transaction price, subject to the constraint in the new standard for variable consideration, as revenue at the time of delivery. This estimate will be monitored in subsequent periods and adjusted as necessary based on actual collection experience. This will result in earlier revenue recognition as compared to previous revenue recognition.

For pharma research and development services revenue, the Company identified a difference in accounting for certain contracts from the application of the new revenue accounting standard as compared to previous revenue accounting standards. Historically, for arrangements with regulatory and other developmental milestone payments, the Company limited revenue recognition based on the right to invoice the customer. Under the new standard, for these arrangements, the Company will constrain revenue such that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Based on the facts and circumstances associated with each milestone, this could result in a change to the timing and pattern of revenue recognition as compared to previous accounting policy.

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Effective January 1, 2018, the Company recognizes revenue in accordance with ASC 606. Comparative information from prior periods has not been restated and continues to be reported under the accounting standards in effect for those periods.

The cumulative effect of changes made to the Condensed Consolidated Balance Sheet at January 1, 2018 for the adoption of ASC 606 were as follows (in thousands):

In accordance with ASC 606 requirements under the modified retrospective method of adoption, the disclosure of the impact of adoption on our Condensed Consolidated Statement of Operations and Condensed Consolidated Balance Sheet was as follows (in thousands):

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ASC 606 did not have an aggregate impact on the Company’s net cash used in operating activities, but resulted in offsetting changes in certain assets and liabilities presented within net cash used in operating activities in the Company’s Condensed Consolidated Statement of Cash Flows, as reflected in the above tables.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 provides guidance about how to recognize, measure, present and make disclosures about certain financial assets and financial liabilities under Topic 825. ASU 2016-01 became effective for fiscal years beginning after December 15, 2017. The adoption of ASU 2016-01 did not have a material effect on the Company’s consolidated financial statements or disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities, including for operating leases, on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is still performing its assessment of ASU 2016-02, however expects that substantially all of its operating lease commitments will be subject to the new guidance.

In November 2016, the FASB issued ASU 2016-18,  Restricted Cash  (“ASU 2016-18”). ASU 2016-18 provides guidance on the classification of restricted cash and cash equivalents in the statement of cash flows. Although it does not provide a definition of restricted cash or restricted cash equivalents, it states that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of period total amounts shown on the statement of cash flows. ASU 2016-18 became effective for fiscal years beginning after December 15, 2017. The adoption of ASU 2016-18 did not have a material effect on the Company’s consolidated financial statements or disclosures.

In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 provides guidance about which terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 became effective for fiscal years beginning after December 15, 2017. The adoption of ASU 2017-09 did not have an effect on the Company’s consolidated financial statements or disclosures.

Roche Holdings, Inc. and its affiliates

Summary of the Transaction

On January 11, 2015, the Company signed a broad strategic collaboration with Roche Holdings, Inc. and certain of its affiliates (collectively, “Roche”) to further advance the Company’s leadership position in genomic analysis and molecular information solutions in oncology. The transaction, which is a broad multi-part arrangement that includes an R&D collaboration, an ex-U.S. commercial collaboration, a U.S. medical education collaboration, and an equity investment with certain governance provisions, closed on April 7, 2015.

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Under the terms of the transaction, Roche (a) made a primary investment of $250,000,000 in cash through the purchase of 5,000,000 newly issued shares of the Company’s common stock at a purchase price of $50.00 per share and (b) completed a tender offer to acquire 15,604,288 outstanding shares of the Company’s common stock at a price of $50.00 per share. Immediately following the closing of the transaction, Roche owned approximately 61.3% of the outstanding shares. As of March 31, 2018, Roche ’s ownership was approximately 56.9% of the outstanding shares. Upon the closing of the transaction, the size of the Board of Directors of the Company (“Board”) was increased to nine, including three designees of Roche. In February 2017, the Board was incr eased to ten members. In June 2017, the Board was decreased to nine members when a director retired from the Board at our 2017 annual meeting of stockholders.

The Company assessed the agreements related to each of the R&D collaboration, an ex-U.S. commercial collaboration, and the U.S. medical education collaboration and determined they should be treated as separate contracts for accounting purposes.

Summary of the R&D Collaboration Agreement

Under the terms of the Collaboration Agreement by and among the Company, F. Hoffmann-La Roche Ltd, and Hoffmann-La Roche Inc., dated January 11, 2015, as amended (the “R&D Collaboration Agreement”), Roche could pay the Company more than $150,000,000 over a period of five years to access its molecular information platform, to reserve capacity for sample profiling, and to fund R&D programs. Amounts under the R&D Collaboration Agreement will be received as services are performed and obligations are fulfilled under each platform program. Roche will utilize the Company’s molecular information platform to standardize sample profiling conducted as part of its clinical trials, to enable comparability of clinical trial results for R&D purposes, and to better understand the potential for combination therapies. In addition, Roche and the Company will jointly develop solutions related to cancer immunotherapy testing, blood-based genomic analysis using ctDNA assays, and next generation companion diagnostics, each of which represents a distinct platform within the R&D Collaboration Agreement. The R&D Collaboration Agreement is governed by a Joint Management Committee (“JMC”) formed by an equal number of representatives from the Company and Roche. There are also other sub-committees for each platform that will be established to oversee the day to day responsibilities of the respective platform. The JMC will, among other activities, review and approve R&D plans and establish and set expectations for the other platform sub-committees. The JMC and other sub-committees, although considered promises under the arrangement, are immaterial in relation to the entire arrangement and therefore were not identified as performance obligations.

On April 6, 2016, the Company and Roche entered into the First Amendment to the R&D Collaboration Agreement, which reduced certain restrictions on the Company’s activities in immuno-oncology and revised certain criteria for the achievement of a development milestone.

On June 16, 2016, the Company and Roche entered into the Second Amendment to the R&D Collaboration Agreement, which set forth the terms of an omnibus development program to provide for R&D projects that do not fall within the scope of the other programs already covered by the R&D Collaboration Agreement . R&D reimbursements and milestone payments will be recognized using an input method measure of progress based on costs incurred by the Company .

On July 25, 2016, the Company and Roche entered into a Third Amendment to the R&D Collaboration Agreement, which modified certain exclusivity provisions relating to cancer immunotherapy.

On December 20, 2016, the Company and Roche entered into a Fourth Amendment to the R&D Collaboration Agreement, which further modified certain exclusivity provisions relating to cancer immunotherapy.

On September 8, 2017, the Company and Roche entered into a Fifth Amendment to the R&D Collaboration Agreement, which reduced certain exclusivity provisions relating to blood-based tumor mutational burden assays.

On November 1, 2017, the Company and Roche entered into a Sixth Amendment to the R&D Collaboration Agreement, which further modified certain exclusivity provisions relating to cancer immunotherapy.

Molecular Information Platform Program

Under the molecular information platform program within the R&D Collaboration Agreement, the following promises were identified: (i) cross-licenses for access to relevant intellectual property (“IP”), (ii) sample profiling, (iii) access to the Company’s molecular information database, and (iv) full-time equivalent persons (“FTEs”) per year for performance of database queries and the delivery of results.

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The Company assessed which promises within the arrangement are distinct from the other promises, and identified the following separate performance obligations: (i) sample profiling and (ii ) access to the Company’s molecular information database and FTEs per year for the performance of database queries and the delivery of results. The cross-licenses grant each party access to relevant IP to perform under the contract or to exploit the promis ed services. The licenses are delivered at the inception of the arrangement and relate to development and sample profiling work performed under the platform. The Company does not sell the licenses separately as they are closely connected to the development and sample profiling activities and have little value to Roche without these other promised services. Therefore, the licenses are combined with the other performance obligations identified under the molecular information platform program and are not consi dered distinct.

The Company identified an estimated transaction price of approximately $85,000,000 related to the molecular information platform program, which was allocated to the individual performance obligations based on standalone selling price. Revenue related to sample profiling will be recognized at the point in time at which test results are delivered to Roche. The database access and FTE payments will be recognized using a time-elapsed measure of progress over the five-year contract life. The FTEs will perform database queries and will deliver results of the requested database queries. The value to Roche is not only the access to the database, but also the service being performed by the FTEs. Therefore, the Company concluded the FTEs should be combined with the database access as one performance obligation.

Immunotherapy Testing Platform Development Program

Under the immunotherapy testing platform development program within the R&D Collaboration Agreement, the following promises were identified: (i) cross-licenses for access to relevant IP and (ii) obligations to perform R&D services for immuno-biomarker discovery and signature identification.

The Company assessed which promises within the arrangement are distinct from the other promises, and identified a single performance obligation for the performance of R&D services for immuno-biomarker discovery and signature identification. The cross-licenses grant each party access to relevant IP of the other party to perform such party’s obligations under the contract and to exploit the promised service. The licenses are delivered at the inception of the arrangement and relate to R&D work performed under the platform. The Company does not sell the licenses separately as they are closely connected to the R&D activities and have little value to Roche without these other promised services. Therefore, the licenses are combined with the other performance obligation identified under the immunotherapy testing platform development program and are not considered distinct.

Under this platform, Roche will reimburse the Company for certain R&D costs incurred related to the immuno-biomarker discovery and signature identification activities, as well as costs incurred in the development of immunotherapy assays for clinical studies. In addition, Roche will be required to make certain milestone payments upon the achievement of specified clinical events under the immunotherapy testing platform development program. Clinical milestone payments up to $6,600,000 in the aggregate are triggered upon the initiation of Roche clinical trials using immunotherapy assays developed under the R&D Collaboration Agreement. The R&D reimbursements and clinical milestone payments will be recognized using an input method measure of progress based on costs incurred by the Company.

Circulating Tumor DNA (ctDNA) Platform Development Program

Under the ctDNA platform development program within the R&D Collaboration Agreement, the following promises were identified: (i) cross-licenses for access to relevant IP and (ii) obligations to perform R&D services for the development of a ctDNA clinical trial assay, including its analytical validation.

The Company assessed which promises within the arrangement are distinct from the other promised services, and identified a single performance obligation for the performance of R&D services for the development of a ctDNA clinical trial assay. The cross-licenses grant each party access to relevant IP of the other party to perform such party’s obligations under the contract and to exploit the promised service. The licenses are delivered at the inception of the arrangement and relate to R&D work performed under the platform. The Company does not sell the licenses separately as they are closely connected to the R&D activities and have little value to Roche without these other promised services. Therefore, the licenses are combined with the other performance obligation identified under the ctDNA platform development program and are not considered distinct.

The Company was responsible for all R&D costs under the ctDNA platform development program. Roche was required to make certain milestone payments upon the achievement of specified events. Milestone payments equal to $12,000,000 in the aggregate were triggered upon successful analytical validation of a ctDNA clinical trial assay and delivery of a ctDNA clinical trial assay for use in Roche clinical trials. All milestones were recognized at the point in time at which benefit transferred to Roche.

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Companion Diagnostics (CDx) Development Program

Under the CDx development program within the R&D Collaboration Agreement, the following promises were identified: (i) cross-licenses for access to relevant IP, (ii) obligations to perform R&D services for the development of CDx assays for use in connection with certain Roche products, and (iii) obligations to maintain commercial availability of our assay inclusive of Roche biomarkers.

The Company assessed which promises within the arrangement are distinct from the other promised services, and identified the following separate performance obligations: (i) obligation to perform R&D services for the development of a CDx assay and (ii) obligation to maintain commercial availability of our assay inclusive of Roche biomarkers. The cross-licenses grant each party access to relevant IP of the other party to perform such party’s obligations under the contract and to exploit the promised services. The licenses are delivered at the inception of the arrangement and relate to R&D work performed under the platform. The Company does not sell the licenses separately as they are closely connected to the R&D activities and have little value to Roche without these other promised services. Therefore, the licenses are combined with the obligation to perform R&D services for the development of a CDx assay as a single performance obligation.

Under this platform, Roche reimbursed the Company for certain costs incurred related to R&D under the CDx development program with respect to approved and investigational markers. In addition, Roche was required to make certain milestone payments upon the achievement of specified regulatory and commercial events under the CDx development program. Regulatory milestone payments of $600,000 were triggered upon obtaining FDA approval of a premarket approval application for each CDx product developed under the arrangement. The R&D reimbursements and regulatory milestone payments were recognized using an input method measure of progress based on costs incurred by the Company. Commercial milestone payments are triggered upon the performance of a specified number of CDx assays for certain commercial clinical diagnostic uses. Any commercial milestone payments received by the Company will be recognized using an input method to measure progress, resulting in a time-elapsed measure of progress.  

Termination of the R&D Collaboration Agreement

The R&D Collaboration Agreement may be terminated by either the Company or Roche on a program-by-program basis, upon written notice, in the event of the other party’s uncured material breach. Roche may also terminate the entire R&D Collaboration Agreement or an individual program under the R&D Collaboration Agreement for any reason upon written notice to the Company, subject to certain exceptions. If the R&D Collaboration Agreement is terminated, license and IP rights are returned to each party and the Company must return to Roche or dispose of any unused samples delivered for profiling purposes. If Roche terminates the R&D Collaboration Agreement as a result of a breach by the Company, Roche retains the license rights granted to certain IP of the Company, and the Company shall refund to Roche any reserved capacity fees and database access fees previously received by the Company that were unused based on the passage of time up to termination for the given contract year. If the R&D Collaboration Agreement is terminated by Roche without cause or by the Company due to a breach by Roche, the Company has a right to receive the contractual payments it would have expected to receive for each program had the agreement not been terminated.

Summary of the Ex-U.S. Commercialization Agreement

In addition to the R&D Collaboration Agreement, the Company entered into the Ex-U.S. Commercialization Agreement with Roche (as most recently amended and restated in February 2018, the “Ex-U.S. Commercialization Agreement”) designed to facilitate the delivery of the Company’s services outside the United States (“Ex-U.S.”) in partnership with Roche. Pursuant to the Ex-U.S. Commercialization Agreement, on April 7, 2016, Roche obtained Ex-U.S. commercialization rights to the Company’s existing services and to future co-developed services. The Company remains solely responsible for commercialization of its services within the United States. The selected geographic areas where Roche exercised its commercialization rights constitute the “Roche Territory.” For those geographic areas that Roche does not select, the commercialization rights for such geographic areas revert back to the Company. The Ex-U.S. Commercialization Agreement is governed by the JMC. There is also a Joint Operational Committee (“JOC”) that has been established to oversee the activities under the Ex-U.S. Commercialization Agreement. The JMC will have the responsibilities as outlined under the R&D Collaboration Agreement. The JMC and JOC, although considered promises under the arrangement, are immaterial in relation to the entire arrangement and therefore were not identified as performance obligations.

Under the Ex-U.S. Commercialization Agreement, the following promises were identified: (i) the right, granted by means of a license, for Roche to market and sell the Company’s services in the Roche Territory and (ii) obligations to perform sample profiling and other services relating to Company services sold by Roche in the Roche Territory. The Company concluded that the license is delivered at the inception of the arrangement. The Company does not sell the license separately as it is closely connected to the sample profiling and other services and has little value to Roche without these services being performed. Therefore, the promises identified will be combined as a single performance obligation under the Ex-U.S. Commercialization Agreement and revenue will be recognized at the point in time test results are delivered for each test sold by Roche.

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Roche will reimburse the Company for costs incurred in performing sample profiling and other services relating to Company services sold by Roche in the Roche Territory. These reimbursements will be recognized as revenue in the period the sample profiling service has been completed. In addition, Roche will be required to make a one-time milestone payment of $10,000,000 when the aggregate gross margin on sales of certain of the Company’s services reaches $100,000,000 in the Roche Territory in any calendar year. In the e vent Roche does not satisfy its specified commercialization obligations under the agreement, including its obligation to launch Company services in specific countries within a specified timeframe, after a cure period, Roche may be required to make penalty payments to the Company. This milestone payment and these penalty payments will be constrained and recognized in their entirety when the associated contingency is resolved as no enforceable right to payment exists until achievement .

The Company is entitled to receive, on a quarterly basis, tiered payments ranging from the mid-single digits to high-teens based on a percentage of the aggregate gross margin generated on sales of specified services in the Roche Territory during any calendar year. These payments are recognized in the period when tests are delivered.

The Ex-U.S. Commercialization Agreement may be terminated by either the Company or Roche in its entirety or on a country-by-country or product-by-product basis, upon written notice, in the event of the other party’s uncured breach of its material obligations under the agreement. Roche may also terminate the Ex-U.S. Commercialization Agreement without cause on a product-by-product and/or country-by-country basis, upon written notice to the Company, after the initial five-year term. If the Ex-U.S. Commercialization Agreement is terminated, the license and IP rights granted by the Company to Roche terminate. In addition, if Roche terminates the Ex-U.S. Commercialization Agreement as a result of a breach by the Company, Roche may seek damages via arbitration or be eligible to receive either a one-time payment reflecting the value of the terminated services or a royalty on sales of the terminated products based on the royalty Roche would have paid the Company for the terminated products had the Ex-U.S. Commercialization Agreement not been terminated.

Summary of the U.S. Education Agreement

Within the United States, the Company has entered into the U.S. Education Collaboration Agreement (the “U.S. Education Agreement”) with Genentech, Inc. (“Genentech”), an affiliate of Roche. Genentech has agreed to engage its pathology education team to provide information and medical education to health care providers regarding comprehensive genomic profiling in cancer. The Company will pay Genentech on a quarterly basis for costs incurred by Genentech in conducting the education activities based on a number of factors. The total amount of payments to be made over the course of the arrangement is immaterial and all payments will be expensed as incurred.

IVD Collaboration Agreement

On April 6, 2016, the Company entered into a Master IVD Collaboration Agreement (the “IVD Collaboration Agreement”) with F. Hoffmann-La Roche Ltd and Roche Molecular Systems, Inc., which memorializes in a definitive agreement the terms set forth in that certain Binding Term Sheet for an In Vitro Diagnostics Collaboration, by and between F. Hoffmann-La Roche Ltd and the Company, which was entered into in connection with the Company’s strategic collaboration with Roche.

The IVD Collaboration Agreement provides terms for the Company and Roche to collaborate non-exclusively to develop and commercialize  in vitro  diagnostic versions of certain existing Company tests, including FoundationOne and FoundationOneHeme, and future Company tests, including those developed under the R&D Collaboration Agreement.

The IVD Collaboration Agreement expires on April 7, 2020, unless earlier terminated as provided therein. Roche also has the right, in its sole discretion, to extend the term of the IVD Collaboration Agreement for additional two-year periods of time during any period of time in which Roche continues to hold at least 50.1% of the Company’s capital stock. Either party may terminate the IVD Collaboration Agreement for an uncured breach of the agreement, or for insolvency or bankruptcy.

Biopharmaceutical Partner

In July 2012, the Company entered into a Master Services Agreement (“Services Agreement”) with a biopharmaceutical partner (“Partner”) to perform sample profiling at the Partner’s request. The Services Agreement established the legal and administrative framework for the partnership between the entities. The Services Agreement also included a right for the Partner to initiate an exclusive negotiation with the Company for the development of a Companion Diagnostic (“CDx”). In March 2014, the Company and Partner expanded the scope of work by executing a Companion Diagnostic Agreement (“Amended Agreement”), thereby amending the Services Agreement to include the joint development and regulatory approval for a CDx. The Amended Agreement defined the term of the arrangement as the earlier of five years or receipt of certain regulatory approvals of a CDx. The Company concluded that the amendment to the original Services Agreement should be treated as a new agreement pursuant to ASC 606 as the Amended Agreement changed both the scope and price of the existing arrangement.

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The Company identified six promises under the Amended Agreement: (i) cross-licenses for access to relevant IP, (ii) obligations to continue to perform sample profiling pursuant to the original Services Agreement, (iii) obligations to perform specific R&D activities for the development of a CDx assay for use in connection with the Partner’s product, (iv) obligations to assist in obtaining regulatory approval of the Partner’s product at its request, (v) obligations to perform analytical validation of the CDx assay, and (vi) obligations to make the CDx assay commercially available, following any require d regulatory approval.

The Company then determined the following promises were separate performance obligations: (i) obligations to continue to perform sample profiling pursuant to the original Services Agreement, (ii) obligations to perform specific R&D activities for the development of a CDx assay for use in connection with the Partner’s product and to provide assistance in obtaining regulatory approval of the Partner’s product at its request, inclusive of analytical validation of the CDx assay, and (iii) obligations to make the CDx assay commercially available, following any regulatory approval obtained. The cross-licenses grant each party access to relevant IP of the other party to perform such party’s obligations under the contract and to exploit the promised services. The licenses are delivered at the inception of the arrangement and primarily relate to the R&D development activities performed under the Amended Agreement. The Company does not sell the licenses separately as they are closely connected to the R&D development activities and have little value to the Partner without the other promised services. Therefore, the licenses are combined with the obligation to perform R&D services for the development of a CDx assay as a single performance obligation.

Under the Amended Agreement, the Partner pays a fixed fee for each sample to be profiled; will reimburse the Company for a portion of costs incurred in performing analytical validation of the CDx assay; and will be required to make certain substantive milestone and other payments upon the achievement of specified regulatory and clinical events tied to the development and commercialization of the CDx. The estimated transaction price under the Amended Agreement was allocated to the performance obligations based on standalone selling price. The transaction price allocated to sample profiling is recognized as results of sample profiling are delivered. Consideration allocated to the R&D development activities is recognized using an input method measure of progress based on costs incurred by the Company. As of December 31, 2016, the CDx assay had achieved regulatory approval and the regulatory and development obligations under the Amended Agreement had been completed. Consideration allocated to the commercial availability performance obligation is recognized using a time-elapsed measure of progress.

Under the Amended Agreement, the Company recognized revenue of $2,325,000 and $306,000 for the three months ended March 31, 2018 and 2017, respectively, which was primarily related to sample profiling.

Refer to Note 2: Summary of Significant Accounting Policies and Note 7: Contract Balances for a complete description of our revenue recognition policy under ASC 606, as well as comparative information demonstrating the impact of ASC 606 on our consolidated financial statements.

We disaggregate our revenue from contracts with customers by type of service, as we believe this best depicts how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors. The following tables present our revenue disaggregated by type of service.

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On March 31, 2018, we had $96.1 million of remaining transaction price allocated to performance obligations which are unsatisfied or partially unsatisfied, of which $51.4 million is associated with related parties. For the $51.4 million associated with related parties, we expect to recognize approximately 58 percent of our remaining transaction price as revenue within the next 12 months following March 31, 2018 and an additional 42 percent in the 12 months thereafter. For the remaining $44.7 million, we expect to recognize approximately 23 percent of our remaining transaction price as revenue within the next 12 months following March 31, 2018, an additional 30 percent in the 12 months thereafter, and the remaining 47 percent thereafter. We have elected to utilize the practical expedient of excluding contracts with an original duration of one year or less. As a result, the majority of our molecular information services contracts are excluded from the calculation and the balance is primarily comprised of transaction price associated with our long-term pharma R&D service contracts, as well as the molecular information platform program within the R&D Collaboration Agreement with Roche.

During the three months ended March 31, 2018, we recognized $1.2 million of revenue from performance obligations satisfied in prior periods, as a result of changes in the estimation of the transaction price for certain arrangements. Changes in the estimation of the transaction price for our clinical molecular information services revenue occur when we adjust our initial estimate based on actual cash collection experience from payors. Changes in the estimation of the transaction price for our pharma research and development services revenue occur based on revisions to our estimate of the constraint for variable consideration of performance-based milestones.

The Company considers all highly liquid investments with original maturity from the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include bank demand deposits and money market funds that invest primarily in U.S. government-backed securities and treasuries. Cash equivalents are carried at cost, which approximates their fair value.

Restricted cash consists of deposits securing letters of credit issued to lessors as collateral in connection with the Company’s operating leases. As of each March 31, 2018 and December 31, 2017, the Company had restricted cash of $2,305,000.

The timing of revenue recognition, invoicing, and cash collection results in billed accounts receivable, unbilled receivables (contract assets), and deferred revenue (contract liabilities). The Company presents current contract assets within prepaid expenses and other current assets and non-current contract assets within other assets, while accounts receivable and deferred revenue are presented separately on the Condensed Consolidated Balance Sheet. For clinical molecular information services revenue, billing generally occurs at the same time as revenue recognition, meaning the Company does not record unbilled receivables or deferred revenue related to these services. For biopharmaceutical molecular information services revenue, billing generally occurs at the same time as revenue recognition. However, we sometimes receive payment in advance of services being performed. For example, contracts may contain upfront payments or, for our subscription-type arrangements, may call for invoicing at the start of each quarter. Both of these scenarios result in the recording of deferred revenue. For Pharma research and development services, the timing between revenue recognition and invoicing is likely to vary due to the longer-term nature of these contracts. For example, these contracts often contain upfront payments, which results in the recording of deferred revenue to the extent cash is received prior to our performance of the related services. Conversely, these contracts typically contain performance-based milestones. Dependent on our estimation of variable consideration and application of the constraint, we may recognize revenue as we perform toward these milestones but prior to achievement of the milestones, which would result in the recording of contract assets. In all cases, deferred revenue is relieved as we perform under our obligations and revenue is consequently recognized. Contract assets are relieved when milestones are achieved and we invoice the customer, thereby shifting the balances from contract assets to accounts receivable. Revenue recognized in the three months ended March 31, 2018 that was included in the deferred revenue balance as of December 31, 2017 was $3.9 million and

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represented primarily revenue from provision of sample profiling services under the reserved capacity arrangement with Roche. As of March 31, 2018 , the Company had current unbilled receivables of $4 . 8 million and non-current unbilled receivabl es of $0.5 million , as compared to current unbilled receivables of $ 0.7 million and non-current unbilled receivables of $ 0.6 million as of January 1, 2018. The Company did not record unbilled receivables for its contract assets prior to adoption of ASC 606 on January 1, 2018.

Two customer account receivable balances consisting of $9,099,000 and $4,687,000 were greater than 10% of the total accounts receivable balance, including receivables due from Roche, representing 22% and 11%, respectively, of total accounts receivable at March 31, 2018. Two customer account balances consisting of $10,159,000 and $8,990,000 were greater than 10% of the total accounts receivable balance, including receivables due from Roche, representing 34% and 30%, respectively, of total accounts receivable at December 31, 2017.

Inventories are stated at the lower of cost or net realizable value on a first-in, first-out basis and are comprised of the following (in thousands):

Property and equipment and related accumulated depreciation and amortization are as follows (in thousands):

Depreciation and amortization expense for the three months ended March 31, 2018 and 2017 was $5,365,000 and $4,466,000, respectively. The Company classifies capitalized internal use software in lab equipment, computer equipment and software based on its intended use.

Accrued expenses and other current liabilities consisted of the following (in thousands):

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On July 31, 2017, the Company entered into an Amendment Letter Agreement (the “Amendment”) with Roche Finance Ltd (“Roche Finance”), amending the Credit Facility Agreement, dated August 2, 2016, between the Company and Roche (the “Existing Credit Facility” and, as amended, the “Roche Credit Facility”).

The Amendment amends certain provisions of the Existing Credit Facility to provide for an extension of the period during which the Company may borrow funds from three to four years, ending August 2, 2020 (the “Draw Period”), and an increase in the available funds from $100 million to $200 million, of which $80 million was made available immediately and $120 million was made available upon the achievement of certain milestones. Pursuant to the Amendment, loans made under the Roche Credit Facility will bear interest at 6.5% per annum, as compared to 5% under the Existing Credit Facility. The Company shall pay Roche quarterly during the Draw Period and for six months thereafter accrued interest on the outstanding principal of the loans. Beginning six months after the Draw Period and for five years thereafter, the Company shall pay Roche quarterly equal payments of principal, with accrued interest, in arrears until maturity of the Roche Credit Facility on February 2, 2026 (the “Final Maturity Date”). The Company shall also pay Roche a quarterly commitment fee of 0.4% per annum on the available commitment until the end of the Draw Period, as compared to 0.3% under the Existing Credit Facility. The other provisions of the Existing Credit Facility remain substantially unchanged. The proceeds from the Roche Credit Facility are intended to be used for research and development and commercialization, corporate development, and working capital management.    

The Roche Credit Facility is secured by a lien on all of the Company’s tangible and intangible personal property, including, but not limited to, shares of its subsidiaries (65% of the equity interests in the case of foreign subsidiaries), intellectual property, insurance, trade and intercompany receivables, inventory and equipment, and contract rights, and all proceeds and services thereof (other than certain excluded assets).

The Roche Credit Facility contains certain affirmative covenants, including, among others, obligations for the Company to provide monthly and annual financial statements, to meet specified minimum cash requirements, to provide tax gross-up and indemnification protection, and to comply with laws. The Roche Credit Facility also contains certain negative covenants, including, among others, restrictions on the Company’s ability to dispose of certain assets, to acquire another company or business, to encumber or permit liens on certain assets, to incur additional indebtedness (subject to customary exceptions), and to pay dividends on the Company’s common stock. The Company was in compliance with its covenants under the Roche Credit Facility as of March 31, 2018.

The Roche Credit Facility contains customary events of default, including, among others, defaults due to non-payment, bankruptcy, failure to comply with covenants, breaches of representations and warranties, a change of control, a material adverse effect and judgment defaults. Upon the occurrence and continuation of an event of default following applicable notice and cure periods, amounts due under the Roche Credit Facility may be accelerated. The Company had no events of default under the Roche Credit Facility as of March 31, 2018.

As of March 31, 2018, the Company had $90 million in borrowings outstanding and $110 million of unused and available credit under the Roche Credit Facility. Interest expense was $1.2 million and $0.1 million for the three months ended March 31, 2018 and 2017, respectively.

Basic net loss per share is calculated by dividing net loss applicable to common stockholders by the weighted-average shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting the weighted-average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method and the if-converted method. For purposes of the diluted net loss per share calculation, stock options, and unvested restricted stock are considered to be common stock equivalents, but are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive. Therefore, basic and diluted net loss per share applicable to common stockholders was the same for all periods presented.

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The following potential common stock equivalents were not included in the calculation of diluted net loss per common share because the inclusion thereof would be antidilutive.

The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. FASB ASC Topic 820, Fair Value Measurements and Disclosures establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of a company. Unobservable inputs are inputs that reflect a company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The hierarchy defines three levels of valuation inputs:

The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, and debt. The carrying amount of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued liabilities approximate their fair values because of the short-term nature of the instruments. The fair value of our outstanding debt balance approximates the carrying value as of the balance sheet date. The principal amount of our outstanding debt balance at March 31, 2018 and December 31, 2017 was $90.0 million and $60.0 million, respectively.

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017, and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value (in thousands):

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The Company measures eligible assets and liabilities at fair value, with changes in value recognized in the statement of operations and comprehensive loss. Fair value treatment may be elected either upon initial recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting. Items measured at fair value on a recurring basis at March 31, 2018 include cash equivalents and indebtedness to Roche. The Company did not elect to remeasure any other existing financial assets or liabilities, and did not elect the fair value option for any other financial assets and liabilities transacted during the three months ended March 31, 2018 and 2017.

The Company has reserved for future issuance the following number of shares of common stock:

2010 and 2013 Stock Incentive Plans

In 2010, the Company adopted the Foundation Medicine, Inc. 2010 Stock Incentive Plan (the “2010 Stock Plan”) under which it granted restricted stock, incentive stock options (“ISOs”) and non-statutory stock options to eligible employees, officers, directors and consultants to purchase up to 1,162,500 shares of common stock. In the year ended December 31, 2013, the Company amended the 2010 Stock Plan to increase the number of shares of common stock available for issuance to 4,232,500.

In 2013, in conjunction with its initial public offering, the Company adopted the Foundation Medicine, Inc. 2013 Stock Option and Incentive Plan (the “2013 Stock Plan”) under which it may grant restricted and unrestricted stock, restricted stock units, ISOs, non-statutory stock options, stock appreciation rights, cash-based awards, performance share awards and dividend equivalent rights to eligible employees, officers, directors and consultants to purchase up to 1,355,171 shares of common stock. In connection with the establishment of the 2013 Stock Plan, the Company terminated the 2010 Stock Plan and the 512,568 shares which remained available for grant under the 2010 Stock Plan were included in the number of shares authorized under the 2013 Stock Plan. Shares forfeited or repurchased from the 2010 Stock Plan are returned to the 2013 Stock Plan for future issuance. On January 1, 2018 and 2017, the number of shares reserved and available for issuance under the 2013 Stock Plan increased by 1,461,671 and   1,403,616 shares of common stock, respectively, pursuant to a provision in the 2013 Stock Plan that provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2014, by 4% of the number of shares of common stock issued and outstanding on the immediately preceding December 31 or such lesser number as determined by the compensation committee of the Board.  

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The terms of stock award agreements, including vesting requirements, are determined by the Board, or pe rmissible designee thereof, subject to the provisions of the 2010 Stock Plan and the 2013 Stock Plan. Options, restricted stock, and restricted stock units granted by the Company typically vest over a four-year period. The options are exercisable from the date of grant for a period of 10 years. The exercise price for stock options granted is equal to the closing price of the Company’s common stock on the applicable date of grant.

Restricted Stock

For restricted stock, including restricted stock units, granted to employees, the intrinsic value on the date of grant is recognized as stock-based compensation expense ratably over the period in which the restrictions lapse. For restricted stock granted to non-employees, the intrinsic value is remeasured at each vesting date and at the end of the reporting period. The following table shows a roll forward of restricted stock activity pursuant to the 2010 Stock Plan and the 2013 Stock Plan:

Total stock-based compensation expense recognized for restricted stock awards was $2,997,000 and $5,639,000 for the three months ended March 31, 2018 and 2017, respectively.

The Company recorded total stock-based compensation expense for stock options granted to employees, directors and non-employees from the 2010 Stock Plan and the 2013 Stock Plan of $211,000 and $760,000 for the three months ended March 31, 2018 and 2017, respectively.

The Company recorded stock-based compensation expense in the statements of operations and comprehensive loss as follows (in thousands):

As of March 31, 2018, unrecognized compensation cost of approximately $23,510,000 related to non-vested stock options and restricted stock awards is expected to be recognized over weighted-average period o f 2.3 years.

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Legal Matters

From time to time, we are a party to litigation arising in the ordinary course of its business. On July 28, 2017, a purported stockholder of the Company filed a putative class action in the U.S. District Court for the District of Massachusetts, against the Company and certain of its current and former executives, captioned Mahoney v. Foundation Medicine, Inc., et al. , No. 1:17-cv-11394. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder based on allegedly false and misleading statements and omissions when providing 2015 financial guidance. The lawsuit seeks among other things, unspecified compensatory damages in connection with the Company’s allegedly inflated stock price between February 26, 2014 and November 3, 2015, interest, attorneys’ fees and costs, and unspecified equitable/injunctive relief.  On December 22, 2017, the plaintiffs filed an amended class action complaint alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder based on allegedly false and misleading statements and omissions concerning providing 2015 financial guidance and other statements during the class period concerning demand and reimbursement for certain of the Company’s tests.  On February 20, 2018, the Company moved to dismiss the complaint for failure to state a claim, which plaintiffs opposed on April 23, 2018. We believe this case is without merit and, therefore, continue to vigorously defend ourselves against the allegations.

Roche Holdings, Inc. and its affiliates

Related-party molecular information services revenue from Roche for the three months ended March 31, 2018 and 2017 was $14,648,000 and $5,504,000, respectively, which was earned under the Molecular Information Platform Program and Ex-U.S. Commercialization Agreement.

Related-party pharma research and development services revenue from Roche for the three months ended March 31, 2018 and 2017 was $1,467,000 and $4,143,000, respectively, from the reimbursement of R&D costs under the CDx Development, Immunotherapy Testing Platform Development and other programs.

Costs of related-party molecular information services from Roche were $5,948,000 and $900,000 for the three months ended March 31, 2018 and 2017, respectively, which consisted of costs incurred under the Molecular Information Platform Program and costs related to the delivery of services outside of the United States under the Ex-U.S. Commercialization Agreement.

At March 31, 2018, $9,099,000 and $4,801,000 was included in total accounts receivable and deferred revenue, respectively, related to this arrangement with Roche. At December 31, 2017, $10,159,000 and $3,742,000 was included in total accounts receivable and deferred revenue, respectively, related to this arrangement with Roche. As of March 31, 2018, the Company had $90 million in borrowings outstanding under the Roche Credit Facility. There were no other material Roche-related balances included in the condensed consolidated financial statements as of March 31, 2018 or December 31, 2017, or for the three months ended March 31, 2018 and 2017.

On April 26, 2018, we announced a three-party collaboration with Roche and Dian Diagnostics Group, Co., Ltd. (“Dian”) to integrate our comprehensive genomic profiling (“CGP”) assays into clinical patient care in mainland China. Under the collaboration, Dian becomes the exclusive clinical sequencing partner in China for FoundationOne, FoundationACT and FoundationOneHeme, enabling the delivery of molecular information services by these tests for patients in China. Roche will maintain commercial exclusivity for our molecular information services in China, and in cooperation with Dian will continue its current in-county activities to support the broad integration of CGP into clinical care.

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