As of September 30, 2020 and December 31, 2019, our inventory consisted of the following components:



	September 30,		December 31,
(in thousands)	2020		2019
Purchased materials	$	5,198	$	3,966
Work in process		5,439		4,594
Finished goods		5,303		4,752
Inventory	$	15,940	$	13,312

Long-term restricted cash

For our facility located at 1305 O’Brien Drive, Menlo Park, California (the “O’Brien Lease”), we were required to establish a letter of credit for the benefit of the landlord and to submit $4.5 million as a deposit for the letter of credit in October 2015. Subsequently, pursuant to the terms of the O’Brien Lease, on May 1, 2019, the amount of the letter of credit was reduced from $4.5 million to $4.0 million. As such, $4.0 million was recorded in “Long-term restricted cash” in the condensed consolidated balance sheet as of December 31, 2019. Pursuant to the terms of the O’Brien Lease, the letter of credit balance of $4.0 million was reduced again in May 2020 by $500,000. As such, $3.5 million was recorded in “Long-term restricted cash” in the condensed consolidated balance sheet as of September 30, 2020.

Deferred gain from Reverse Termination Fee

As part of the Termination Agreement, Illumina paid us a Reverse Termination Fee of $98.0 million, from which we owed our financial advisor associated fees of $6.0 million. We recorded the $6.0 million of associated fees owed to our financial advisor in the “Sales, general and administrative” expense line in the condensed consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2020.

Pursuant to the Termination Agreement, in the event that, on or prior to September 30, 2020, we entered into a definitive agreement providing for, or consummated, a Change of Control Transaction, then we may have been required to repay the Reverse Termination Fee (without interest) to Illumina in connection with the consummation of such Change of Control Transaction. If such Change of Control Transaction was not consummated by the two year anniversary of the execution of the definitive agreement for such Change of Control Transaction, then we would not have been required to repay the Reverse Termination Fee. As indicated in ASC 450, Contingencies, a gain contingency usually is not recognized in the financial statements until the period in which all contingencies are resolved and the gain is realizable. As such, we deferred the gain from the Reverse Termination Fee from Illumina until the date when the associated contingency was resolved and accordingly, we recorded the $98.0 million as “Deferred Gain from Reverse Termination Fee” in the condensed consolidated balance sheet as of September 30, 2020. Subsequently, on October 1, 2020, the contingency clauses lapsed.

Notes payable, current

As of December 31, 2019, a balance of $16.0 million aggregate principal amount of debt remained outstanding under the debt agreement with Deerfield entered into in February 2013 (the “Facility Agreement”) and was presented as “Notes payable, current” on the condensed consolidated balance sheet as of December 31, 2019.

In February 2020, upon the maturity of the Facility Agreement, we repaid the remaining outstanding principal of $16.0 million and interest.

Financing Derivative

A number of features embedded in the Notes required accounting for them as a derivative, including the indemnification of certain withholding taxes and the acceleration of debt upon (i) a qualified financing, (ii) an event of default, (iii) a Major Transaction (as such term is defined in the Facility Agreement), and (iv) the exercise of the warrant via offset to the debt principal. These features represent a single derivative (the “Financing Derivative”) that was bifurcated from the debt instrument and accounted for as a liability at fair value, with changes in fair value between reporting periods recorded in other income (expense), net.

The estimated fair value of the Financing Derivative was determined by comparing the difference between the fair value of the Notes with and without the Financing Derivative by calculating the respective present values from future cash flows using a 6.5% discount rate at December 31, 2019. The estimated fair value of the Financing Derivative as of December 31, 2019 was $0.

In February 2020, after we repaid the remaining outstanding principal of $16.0 million and interest to Deerfield, the related Financing Derivative expired.

Deferred revenue

As of September 30, 2020, we had a total of $8.7 million of deferred revenue from our service contracts, $6.9 million of which was recorded as “Deferred revenue, current” to be recognized over the next year and the remaining $1.8 million was recorded as “Deferred revenue, non-current” to be recognized in the next 3 years. Revenue recorded in the three and nine months ended September 30, 2020 includes $1.6 million and $6.5 million, respectively, of previously deferred revenue that was included in “Deferred revenue, current” as of December 31, 2019. Contract assets as of September 30, 2020 and December 31, 2019 were not material.

As of September 30, 2020, we had a total of $0.6 million of deferred commissions included in “Prepaid expenses and other current assets” which is recognized as the related revenue is recognized. Additionally, as a practical expedient, we expense costs to obtain a contract as incurred if the amortization period would have been a year or less.