ITEM 1.
FINANCIAL STATEMENTS
Vermillion, Inc.
Condensed Consolidated Balance Sheets
(Amounts in Thousands, Except Share and Par Value Amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
2019
|
|
2018
|
Assets
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
16,179
|
|
$
|
9,360
|
Accounts receivable, net
|
|
800
|
|
|
786
|
Prepaid expenses and other current assets
|
|
496
|
|
|
550
|
Inventories
|
|
90
|
|
|
92
|
Total current assets
|
|
17,565
|
|
|
10,788
|
Property and equipment, net
|
|
472
|
|
|
608
|
Other assets
|
|
115
|
|
|
12
|
Total assets
|
$
|
18,152
|
|
$
|
11,408
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
$
|
811
|
|
$
|
950
|
Accrued liabilities
|
|
2,473
|
|
|
1,825
|
Short-term debt
|
|
191
|
|
|
189
|
Other current liabilities
|
|
86
|
|
|
-
|
Total current liabilities
|
|
3,561
|
|
|
2,964
|
Non-current liabilities:
|
|
|
|
|
|
Long-term debt
|
|
1,196
|
|
|
1,292
|
Other non-current liabilities
|
|
29
|
|
|
-
|
Total liabilities
|
|
4,786
|
|
|
4,256
|
Commitments and contingencies (Note 3)
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
Preferred stock,
$0.001
par value,
5,000,000
shares authorized,
none
issued and outstanding at June 30, 2019 and December 31, 2018
|
|
-
|
|
|
-
|
Common stock, par value
$0.001
per share,
150,000,000
shares authorized at June 30, 2019 and December 31, 2018;
94,378,200
and
75,501,394
shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
|
|
94
|
|
|
75
|
Additional paid-in capital
|
|
428,226
|
|
|
414,001
|
Accumulated deficit
|
|
(414,954)
|
|
|
(406,924)
|
Total stockholders’ equity
|
|
13,366
|
|
|
7,152
|
Total liabilities and stockholders’ equity
|
$
|
18,152
|
|
$
|
11,408
|
See accompanying notes to the unaudited condensed consolidated financial statements.
Vermillion, Inc.
Condensed Consolidated Statements of Operations
(Amounts in Thousands, Except Share and Per Share Amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
$
|
1,100
|
|
$
|
627
|
|
$
|
1,879
|
|
$
|
1,240
|
Service
|
|
42
|
|
|
81
|
|
|
66
|
|
|
117
|
Total revenue
|
|
1,142
|
|
|
708
|
|
|
1,945
|
|
|
1,357
|
Cost of revenue:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
698
|
|
|
528
|
|
|
1,214
|
|
|
1,061
|
Service
|
|
210
|
|
|
280
|
|
|
388
|
|
|
550
|
Total cost of revenue
|
|
908
|
|
|
808
|
|
|
1,602
|
|
|
1,611
|
Gross profit (loss)
|
|
234
|
|
|
(100)
|
|
|
343
|
|
|
(254)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
(2)
|
|
225
|
|
|
154
|
|
|
434
|
|
|
296
|
Sales and marketing
(3)
|
|
2,780
|
|
|
1,478
|
|
|
5,144
|
|
|
2,703
|
General and administrative
(4)
|
|
1,534
|
|
|
1,299
|
|
|
2,789
|
|
|
2,613
|
Total operating expenses
|
|
4,539
|
|
|
2,931
|
|
|
8,367
|
|
|
5,612
|
Loss from operations
|
|
(4,305)
|
|
|
(3,031)
|
|
|
(8,024)
|
|
|
(5,866)
|
Interest income (expense), net
|
|
(2)
|
|
|
(7)
|
|
|
5
|
|
|
(19)
|
Other income (expense), net
|
|
(7)
|
|
|
(11)
|
|
|
(11)
|
|
|
(14)
|
Net loss
|
$
|
(4,314)
|
|
$
|
(3,049)
|
|
$
|
(8,030)
|
|
$
|
(5,899)
|
Net loss per share - basic and diluted
|
$
|
(0.06)
|
|
$
|
(0.04)
|
|
$
|
(0.11)
|
|
$
|
(0.09)
|
Weighted average common shares used to compute basic and diluted net loss per common share
|
|
76,205,894
|
|
|
69,353,622
|
|
|
75,860,411
|
|
|
64,721,128
|
Non-cash stock-based compensation expense included in cost of revenue and operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
(1) Cost of revenue
|
$
|
21
|
|
$
|
28
|
|
$
|
37
|
|
$
|
58
|
(2) Research and development
|
|
2
|
|
|
1
|
|
|
4
|
|
|
2
|
(3) Sales and marketing
|
|
39
|
|
|
28
|
|
|
61
|
|
|
71
|
(4) General and administrative
|
|
351
|
|
|
304
|
|
|
495
|
|
|
412
|
See accompanying notes to the unaudited condensed consolidated financial statements.
Vermillion, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(Amounts in Thousands, Except Share Amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional Paid-In Capital
|
|
Accumulated Deficit
|
|
Total Stockholders’ Equity
|
Balance at December 31, 2018
|
-
|
|
$
|
-
|
|
75,501,394
|
|
$
|
75
|
|
$
|
414,001
|
|
$
|
(406,924)
|
|
$
|
7,152
|
Net loss
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,716)
|
|
|
(3,716)
|
Common stock issued in conjunction with exercise of stock options
|
-
|
|
|
-
|
|
19,687
|
|
|
-
|
|
|
17
|
|
|
-
|
|
|
17
|
Common stock issued for restricted stock awards
|
-
|
|
|
-
|
|
11,667
|
|
|
-
|
|
|
3
|
|
|
-
|
|
|
3
|
Stock compensation charge
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
181
|
|
|
-
|
|
|
181
|
Balance at March 31, 2019
|
-
|
|
$
|
-
|
|
75,532,748
|
|
$
|
75
|
|
$
|
414,202
|
|
$
|
(410,640)
|
|
$
|
3,637
|
Net loss
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,314)
|
|
|
(4,314)
|
Common stock issued for restricted stock awards
|
-
|
|
|
-
|
|
95,452
|
|
|
-
|
|
|
123
|
|
|
-
|
|
|
123
|
Common stock issued in conjunction with public offering, net of
$1,371
in issuance costs
|
-
|
|
|
-
|
|
18,750,000
|
|
|
19
|
|
|
13,611
|
|
|
-
|
|
|
13,630
|
Stock compensation charge
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
290
|
|
|
-
|
|
|
290
|
Balance at June 30, 2019
|
-
|
|
$
|
-
|
|
94,378,200
|
|
$
|
94
|
|
$
|
428,226
|
|
$
|
(414,954)
|
|
$
|
13,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional Paid-In Capital
|
|
Accumulated Deficit
|
|
Total Stockholders’ Equity
|
Balance at December 31, 2017
|
-
|
|
$
|
-
|
|
60,036,017
|
|
$
|
60
|
|
$
|
399,400
|
|
$
|
(396,053)
|
|
$
|
3,407
|
Net loss
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,850)
|
|
|
(2,850)
|
ASC 606 adjustment to retained earnings
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
500
|
|
|
500
|
Common stock issued for restricted stock awards
|
-
|
|
|
-
|
|
3,321
|
|
|
-
|
|
|
6
|
|
|
-
|
|
|
6
|
Stock compensation charge
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
176
|
|
|
-
|
|
|
176
|
Balance at March 31, 2018
|
-
|
|
$
|
-
|
|
60,039,338
|
|
$
|
60
|
|
$
|
399,582
|
|
$
|
(398,403)
|
|
$
|
1,239
|
Net loss
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,049)
|
|
|
(3,049)
|
Common stock issued in conjunction with exercise of stock options
|
-
|
|
|
-
|
|
32,500
|
|
|
-
|
|
|
30
|
|
|
-
|
|
|
30
|
Common stock issued for restricted stock awards
|
-
|
|
|
-
|
|
202,413
|
|
|
-
|
|
|
225
|
|
|
-
|
|
|
225
|
Common stock issued in conjunction with public offering, net of
$1,006
in issuance costs
|
-
|
|
|
-
|
|
10,000,000
|
|
|
10
|
|
|
8,981
|
|
|
-
|
|
|
8,991
|
Preferred stock issued in conjunction with public offering, net of
$504
in issuance costs
|
50,000
|
|
|
-
|
|
-
|
|
|
-
|
|
|
4,496
|
|
|
-
|
|
|
4,496
|
Preferred stock converted to common stock
|
(50,000)
|
|
|
-
|
|
5,000,000
|
|
|
5
|
|
|
(5)
|
|
|
-
|
|
|
-
|
Stock compensation charge
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
136
|
|
|
-
|
|
|
136
|
Balance at June 30, 2018
|
-
|
|
$
|
-
|
|
75,274,251
|
|
$
|
75
|
|
$
|
413,445
|
|
$
|
(401,452)
|
|
$
|
12,068
|
See accompanying notes to the unaudited condensed consolidated financial statements.
Vermillion, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in Thousands)
(Unaudited)
|
|
|
|
|
|
|
Six Months Ended
|
|
June 30,
|
|
2019
|
|
2018
|
Cash flows from operating activities:
|
|
|
|
|
|
Net loss
|
$
|
(8,030)
|
|
$
|
(5,899)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
215
|
|
|
370
|
Stock-based compensation expense
|
|
597
|
|
|
543
|
Loss on sale and disposal of property and equipment
|
|
3
|
|
|
10
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
|
(14)
|
|
|
(2)
|
Prepaid expenses and other assets
|
|
66
|
|
|
136
|
Inventories
|
|
2
|
|
|
(8)
|
Accounts payable, accrued liabilities and other liabilities
|
|
509
|
|
|
74
|
Net cash used in operating activities
|
|
(6,652)
|
|
|
(4,776)
|
Cash flows from investing activities:
|
|
|
|
|
|
Purchase of property and equipment
|
|
(82)
|
|
|
(34)
|
Net cash used in investing activities
|
|
(82)
|
|
|
(34)
|
Cash flows from financing activities:
|
|
|
|
|
|
Proceeds from public offering of preferred stock, net of issuance costs
|
|
-
|
|
|
4,496
|
Proceeds from public offering of common stock, net of issuance costs
|
|
13,630
|
|
|
8,992
|
Principal repayment of DECD loan
|
|
(94)
|
|
|
(92)
|
Repayment of capital lease obligations
|
|
-
|
|
|
(19)
|
Proceeds from issuance of common stock from exercise of stock options
|
|
17
|
|
|
29
|
Net cash provided by financing activities
|
|
13,553
|
|
|
13,406
|
Net increase in cash and cash equivalents
|
|
6,819
|
|
|
8,596
|
Cash and cash equivalents, beginning of period
|
|
9,360
|
|
|
5,539
|
Cash and cash equivalents, end of period
|
$
|
16,179
|
|
$
|
14,135
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
Cash paid during the period for interest
|
|
21
|
|
|
23
|
Non-cash investing and financing activities:
|
|
|
|
|
|
Net increase in other assets/other liabilities for right of use assets
|
|
115
|
|
|
-
|
50,000
shares of convertible preferred stock converted to
5,000,000
shares of common stock, net of issuance costs
|
|
-
|
|
|
4,496
|
See accompanying notes to the unaudited condensed consolidated financial statements
.
Vermillion, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.
ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Organization
Vermillion, Inc. (“Vermillion”; Vermillion and its wholly-owned subsidiaries are collectively referred to as the “Company
,” “we” or “our
”) is incorporated in the state of Delaware, and is engaged in the business of developing and commercializing diagnostic tests for gynecologic disease. The Company sells OVA1 and Overa risk of malignancy tests for ovarian cancer (“OVA1” and “Overa,” respectively) through Vermillion’s wholly-owned Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) certified clinical laboratory, ASPiRA LABS, Inc. (“ASPiRA LABS”).
The Company also offers in-vitro diagnostic (“IVD”) trial services to third-party customers through its wholly-owned subsidiary, ASPiRA IVD, Inc. (“ASPiRA IVD”), which commenced operations in June 2016.
ASPiRA IVD is a specialized, CLIA certified, laboratory provider dedicated to meeting the unique testing needs of IVD manufacturers seeking to commercialize high-complexity assays.
In addition, the Company launched genetic testing for specific women’s health diseases, called ASPiRA GenetiX, with a core focus on ovarian cancer.
Liquidity
The Company has incurred significant net losses and negative cash flows from operations since inception, and as a result has an accumulated deficit of approximately $41
4,954
,000 at
June
30
, 2019. The Company also expects to incur a net loss and negative cash flows from operations for 2019.
There can be no assurance that the Company will achieve or sustain profitability or positive cash flow from operations.
However, management believes that the current working capital position will be sufficient to meet the Company’s working capital needs for at least the next 12 months.
As discussed in Note 4, on June 28, 2019, the Company completed a public offering (the “Offering”), pursuant to which certain investors purchased Vermillion common stock for net proceeds of approximately $13,
80
0,000 after deducting
underwriting discounts
,
commissions
and certain underwriting expenses
but before deducting other
expenses payable by us
.
On July 2, 2019, William Blair & Company, L.L.C., the sole underwriter of the Offering, exercised its option to purchase additional
shares of
Vermillion common stock for net proceeds of $2,092,500
,
after deducting underwriting discounts and commissions
.
As discussed in Note 4, on April 17, 2018, the Company completed two public offerings (the “
2018
Offerings”), pursuant to which certain investors purchased Vermillion common stock and Vermillion Series B convertible preferred stock for net proceeds of approximately $13,500,000 after deducting offering expenses.
As discussed in Note 3, in March 2016, the Company entered into an agreement (the “Loan Agreement”) pursuant to which it may borrow up to $4,000,000 from the State of Connecticut Department of Economic and Community Development (the “DECD”). An initial disbursement of $2,000,000 was made to the Company on April 15, 2016 under the Loan Agreement. The remaining $2,000,000 will be advanced if and when the Company achieves certain future milestones.
The loan may be prepaid at any time without premium or penalty.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management of the Company, all adjustments, consisting of normal recurring adjustments necessary for
the fair statement of results for the periods presented, have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year or any other interim period.
The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim unaudited condensed consolidated financial statements have read or have access to the audited consolidated financial statements for the preceding fiscal year. The condensed consolidated balance sheet at December 31, 2018 included in this report has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by GAAP. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2018 included in Vermillion’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 28, 2019 (the “2018 Annual Report”).
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated results.
Significant Accounting and Reporting Policies
Revenue Recognition
The Company accounts for revenue in accordance with ASC Topic 606,
Revenue from Contracts with Customers
(“ASC 606”)
, which it adopted on January 1, 2018 using the modified retrospective method.
In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods and services.
Product Revenue
The Company's product revenue is generated by performing diagnostic services using its OVA1 and Overa tests, and the service is completed upon the delivery of the test result to the prescribing physician. The entire transaction price is allocated to the single performance obligation contained in a contract with a patient. All revenue is recognized upon completion of the OVA1 or Overa test based on estimates of amounts that will ultimately be realized. In determining the amount of revenue to be recognized for a delivered test result, the Company considers factors such as payment history and amount, payer coverage, whether there is a reimbursement contract between the payer and the Company, and any current developments or changes that could impact reimbursement. These estimates require significant judgment by management as the collection cycle on some accounts can be as long as one year.
The Company also reviewed its patient account population and determined an appropriate distribution of patient accounts by payer (
i.e.
, Medicare, patient pay, other third-party payer,
etc
.) into portfolios with similar collection experience. The Company has elected this practical expedient that, when evaluated for collectability, results in a materially consistent revenue amount for such portfolios as if each patient account were evaluated on an individual contract basis. There were no impairment losses on accounts receivable recorded during the
six
months ended
June 30
, 2019.
Service Revenue
The Company’s service revenue is generated by performing IVD trial services for third-party customers.
Measurement of progress on contracts with customers will generally be based on the input measurement of cost incurred relative to the total expected costs to satisfy the performance obligation.
Recent Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), Compensation - Stock Compensation (“ASU 2016-09”). The guidance simplifies several aspects of the accounting for share-based payments, including immediate recognition of all excess tax benefits and deficiencies in the income statement, changing the threshold to qualify for equity classification up to the employees' maximum statutory tax rates, allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur, and clarifying the classification on the statement of cash flows for the excess tax benefit and employee taxes paid when an employer withholds shares for tax-withholding purposes. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016 and interim periods within that reporting period. The Company adopted this standard on January 1, 2018, and the adoption did not have a material impact on the consolidated financial statements. In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Base Payment Accounting. This new guidance expands the scope of Topic 718 to include share-based payment transactions from acquiring goods and services from nonemployees, which was previously codified under Topic 505, where this change will modify the measurement requirements of nonemployee awards. This amendment is effective for annual periods after December 15, 2018. The Company adopted this standard on January 1, 2019
,
and its impact was not material.
In February 2016, the FASB issued ASU No. 2016-2,
Leases (Topic 842
)
(“ASU 2016-2”)
. This guidance is intended to make leasing activities more transparent and comparable, and requires substantially all leases
to
be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases.
ASU 2016-2
is
effective for interim and annual periods beginning after December 15, 2018. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited
,
and early adoption
was
permitted.
The Company adopted ASU 2016-02 effective January 1, 2019 and elected the package of practical expedients and the new transition approach permitted by ASU 2018-11. ASU 2018-11 allows the Company not to reassess existing identification of leases, classification of leases or any initial direct costs.
The Company has also elected to use the hindsight practical expedient.
The Company has two office leases which are required to be recorded as Right of Use (“ROU”) assets and corresponding lease liabilities on the balance sheet. The Company
had
no short term leases with terms of less than twelve months
as of the adoption date
. The Company recognized ROU assets and a lease liability of approximately $178,000 related to its leases on its consolidated balance sheet as of January 1, 2019. The Company did not have a cumulative adjustment impacting retained earnings.
In May 2014, the FASB issued ASC 606, which superseded existing revenue recognition guidance. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company adopted ASC 606 effective January 1, 2018 using the modified retrospective method. Please see the above “Revenue Recognition” section for a discussion of the Company’s revenue recognition under ASC 606.
2. AGREEMENTS WITH QUEST DIAGNOSTICS INCORPORATED
In March 2015, the Company entered into a commercial agreement with Quest Diagnostics,
Incorporated (“Quest Diagnostics”)
. Pursuant to this agreement,
all OVA1 U.S. testing services for
Quest Diagnostics
customers were transferred to
Vermillion’s
wholly-owned subsidiary, ASPiRA LABS,
as of August 2015. Pursuant to this agreement, as amended as of March 1, 2018, Quest Diagnostics is continuing to provide
blood draw and logistics support by transporting specimens from its clients to ASPiRA LABS for testing through at least March 11, 2019 in exchange for a market value fee. As of the date of this Quarterly Report on Form 10-Q, we are in the process of renewing this agreement.
3.
COMMITMENTS AND CONTINGENCIES
Development Loan
On March 22, 2016, the Company entered into the Loan Agreement with the DECD, pursuant to which the Company may borrow up to $4,000,000 from the DECD. Proceeds from the loan were utilized primarily to fund the build-out, information technology infrastructure and other costs related to the Company’s Trumbull, Connecticut facility and operations. The loan bears interest at a fixed rate of 2.0% per annum and requires equal monthly payments of principal and interest until maturity, which occurs on April 15, 2026. As security for the loan, the Company has granted the DECD a blanket security interest in the Company’s personal and intellectual property. The DECD’s security interest in the Company’s intellectual property may be subordinated to a qualified institutional lender. Under the terms of the Loan Agreement, as amended, the Company may be eligible for forgiveness of up to $2,000,000 of the principal amount of the loan if the Company achieves certain job creation and retention milestones by March 1, 2021 (the “Measurement Date”). Conversely, if the Company is either unable to meet these job creation and retention milestones, namely, hiring and retaining for a consecutive two-year period
40 full-time employees with a specified average annual salary by the Measurement Date, or does not maintain the Company’s Connecticut operations for a period of 10 years, the DECD may require early repayment of a portion or all of the loan depending on job attainment as compared to the required amount plus a penalty of 5% of the total funded loan.
An initial disbursement of $2,000,000 was made to the Company on April 15, 2016 under the Loan Agreement. The remaining $2,000,000 will be advanced if and when the Company achieves certain other future milestones. The loan may be prepaid at any time without premium or penalty.
Operating Leases
The Company leases facilities to support its business of discovering, developing and commercializing diagnostic tests in the fields of gynecologic disease. The Company’s principal facility, including the CLIA laboratory used by ASPiRA LABS, is located in Austin, Texas, and the CLIA laboratory used by ASPiRA IVD is located in Trumbull, Connecticut. The Austin, Texas lease expires on January 31, 2020 with no automatic renewal or renewal option.
In October 2015, the Company entered into a lease agreement for a facility in Trumbull, Connecticut. The lease required initial payments for the buildout of leasehold improvements to the office space, which were approximately $596,000. The term of the lease is five years beginning after the initial date of occupancy in January 2016 and a rent abatement period of five months, with two subsequent five-year renewal options at a rate equal to 90% of the then current fair market rate.
As of the date of the implementation of the new lease standard,
ASU 2016-2,
the Company
wa
s not reasonably certain to exercise the renewal option for its Trumbull, Connecticut lease due to the uncertain nature of its pricing.
The expense associated with these operating leases
for the three months ended June 30, 2019 and 2018
is shown in the table below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30
|
Lease Cost
|
Classification
|
2019
|
|
2018
|
Operating rent expense
|
|
|
|
|
|
|
|
Cost of revenue
|
$
|
9
|
|
$
|
25
|
|
Research and development
|
|
3
|
|
|
7
|
|
Sales and marketing
|
|
9
|
|
|
12
|
|
General and administrative
|
|
11
|
|
|
23
|
|
|
|
|
|
|
|
Variable rent expense
|
|
|
|
|
|
|
|
Cost of revenue
|
$
|
12
|
|
$
|
0
|
|
Research and development
|
|
3
|
|
|
0
|
|
Sales and marketing
|
|
10
|
|
|
0
|
|
General and administrative
|
|
14
|
|
|
1
|
The expense associated with these operating leases for the six months ended June 30, 2019 and 2018 is shown in the table below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30
|
Lease Cost
|
Classification
|
2019
|
|
2018
|
Operating rent expense
|
|
|
|
|
|
|
|
Cost of revenue
|
$
|
18
|
|
$
|
50
|
|
Research and development
|
|
7
|
|
|
14
|
|
Sales and marketing
|
|
17
|
|
|
24
|
|
General and administrative
|
|
22
|
|
|
45
|
|
|
|
|
|
|
|
Variable rent expense
|
|
|
|
|
|
|
|
Cost of revenue
|
$
|
24
|
|
$
|
0
|
|
Research and development
|
|
6
|
|
|
0
|
|
Sales and marketing
|
|
20
|
|
|
0
|
|
General and administrative
|
|
28
|
|
|
2
|
Based on our leases as of
June 30
, 2019, the table below sets forth the approximate future lease payments related to operating leases with initial terms of one year or more (in
thousands).
|
|
|
2019
|
$
|
65
|
2020
|
|
40
|
2021
|
|
14
|
Total Operating Lease Payments
|
|
119
|
Less: Interest
|
|
(2)
|
Present Value of Lease Liabilities
|
|
117
|
Weighted-average lease term and discount rate were as follows:
|
|
|
|
|
|
Weighted-average remaining lease term (in years)
|
|
1.3
|
Weighted-average discount rate
|
|
2.50%
|
Non-cancelable Royalty Obligations
The Company is a party to an amended research collaboration agreement with The Johns Hopkins University School of Medicine
under which the Company licenses certain of its intellectual property
. Under the terms of the amended research collaboration agreement, Vermillion is required to pay the greater of 4% royalties on net sales of diagnostic tests using the assigned patents or annual minimum royalties of $57,500. Royalty expense for the three months ended
June 30
, 2019 and 2018 totalled $
44
,000 and $2
5
,000, respectively.
Royalty expense for the six months ended June 30, 2019 and 2018 totalled $75,000 and $49,000, respectively.
4. STOCKHOLDERS’ EQUITY
2019 Offering
On June 26, 2019, the Company entered into
an
underwriting agreement
(the “Underwriting Agreement”) with William Blair & Company, L
.
L
.
C., as the sole underwriter (the “Underwriter”), in connection with
an
underwritten public offering of
Vermillion
common stock.
Pursuant to the
Underwriting Agreement, the Company agreed to issue and sell an aggregate of 18,750,000 shares of Vermillion common stock
offered by the Underwriter in a public offering at a price of $0.80
per share (the
“
Offering”). The Offering closed on June 28, 2019 and resulted in proceeds
to the Company,
after deducting underwriting discounts
,
commissions
and certain underwriting expenses
but before deducting other
expenses payable by us
, of approximately
$13,
80
0,000. Under
the
Underwriting Agreement, the Company granted the Underwriter an option to purchase up to an additional 2,812,500 shares of Vermillion common stock at the public offering price, less underwriting discounts and commissions. On July 2,
2019,
the Underwriter exercised its option to purchase 2,812,500 shares of Vermillion common stock at a price of $0.80 per share and resulted in
proceeds
to the Company
, after deducting underwriting discounts and commissions,
of $2,092,500.
2018 Offerings
On April 13, 2018, the Company entered into two underwriting agreements
(each, a “
2018
Underwriting Agreement”) with Piper Jaffray & Co., as the sole underwriter (the “
2018
Underwriter”), in connection with separate but concurrent public offerings of the Company’s securities.
Pursuant to the first
2018
Underwriting Agreement, the Company agreed to issue and sell an aggregate of 10,000,000 shares of Vermillion common stock offered by the
2018
Underwriter in a public offering at a price to the public of $1.00 per share (the “
2018
Common Stock Offering”). Under this
2018
Underwriting Agreement, the Company granted the
2018
Underwriter an option to purchase up to an additional 1,500,000 shares of Vermillion common stock at the public offering price, less underwriting discounts and commissions, to cover over-allotments, if any. The
2018
Underwriter did not exercise this option. The
2018
Common Stock Offering closed on April 17, 2018 and resulted in proceeds, net of 7% underwriting costs and other offering costs, to the Company of $8,992,000.
Pursuant to the second
2018
Underwriting Agreement, the Company agreed to issue and sell an aggregate of 50,000 shares of Vermillion Series B Convertible Preferred Stock, par value $0.001 per share, offered by the
2018
Underwriter in a public offering at a price to the public of $100.00 per share (the “Series B Offering”). The Series B Offering closed on April 17, 2018 and resulted in proceeds, net of 7% underwriting costs and other offering costs, to the Company of $4,496,000.
Upon obtaining Company stockholder approval at the annual meeting of Company stockholders on June 21, 2018, each of the 50,000 shares of Vermillion Series B Convertible Preferred Stock was automatically converted into shares of Vermillion common stock, at a conversion rate of 100 shares of Vermillion common stock per one share of Vermillion Series B Convertible Preferred Stock, including shares issuable pursuant to customary anti-dilution provisions.
2010 Stock Incentive Plan
The Company’s employees, directors, and consultants were eligible to receive awards under the Vermillion, Inc. Second Amended and Restated 2010 Stock Incentive Plan (the “2010 Plan”), which was replaced by the 2019 Plan (as defined below) with respect to future equity grants. As of June 30, 2019, a total of
7,159,586
shares of Vermillion common stock were reserved with respect to outstanding stock option
s
and unvested restricted stock
awards
.
2019 Stock Incentive Plan
At the Company’s annual meeting of stockholders on June 18, 2019, the Company’s stockholders approved the Vermillion, Inc. 2019 Stock Incentive Plan (the “2019 Plan”). The purposes of the 2019 Plan are (i) to align the interests of the Company’s stockholders and recipients of awards under the 2019 Plan by increasing the proprietary interest of such recipients in the Company’s growth and success; (ii) to advance the interests of the Company by attracting and retaining non-employee directors, officers, other employees, consultants, independent contractors and agents; and (iii) to motivate such persons to act in the long-term best interests of the Company and its stockholders. The 2019 Plan allows the Company to grant stock options, stock appreciation rights, restricted stock, restricted stock units and performance awards to participants.
Subject to the terms and conditions of the 2019 Plan, the initial number of shares authorized for grants under the 2019 Plan is
10,492,283
.
To the extent an equity award granted under the 2019 Plan or the 2010 Plan expires or otherwise terminates without having been exercised or paid in full, or is settled in cash, the shares of common stock subject to such award will become available for future grant under the 2019 Plan. As of June 30, 2019, a total of
10,492,283
shares of common stock had been reserved for issuance under the 2019 Plan, of which
100,000
shares of common stock are subject to outstanding stock options
.
Stock-Based Compensation
During the
six
months ended
June 30
, 2019
, the Company awarded
the Company
’s non-employee directors an aggregate of 190,909 shares of restricted stock under the 2010 Plan having a
grant date
fair value of approximately $252,000. The vesting of these shares of restricted stock is as follows: 25% on April 1, 2019
;
25% on June 1, 2019
;
25% on September 1, 2019
;
and 25% on December 1, 2019.
During the
six
months ended
June 30
, 2019, the Company also granted
the Company’s
non-employee directors options to purchase
an aggregate of
402,584 shares of Vermillion common stock with an exercise price of $1.29 per share.
During the
six
months ended
June 30
, 2019, the Company awarded certain consultants 11,667 shares of restricted stock under the 2010 Plan having a
grant date
fair value of approximately $10,000.
During the
six
months ended
June
30
, 2019, the Company also granted certain consultants options to purchase 50,000 shares of Vermillion common stock with an exercise price of $0.47 per share. These
stock options have performance-based vesting
conditions
based on certain metrics through March 31, 2020
.
The Company also granted certain consultants options to purchase
an aggregate of
100,000 shares of Vermillion common stock with an exercise price of $1.29 per share.
During the three months ended June 30, 2019, the Company also granted certain consultants options to purchase
an aggregate of 35,001
shares of Vermillion common stock with an exercise price of $1.28 per share. These
stock options were
granted under the 2010
P
lan and were
fully vested at the time of
the
grant
.
During the
six
months ended
June 30
, 2019, the Company granted certain officers and employees options to purchase
an aggregate of 575,000
shares of Vermillion common stock with an exercise price of $0.47 per share. These
stock options
were granted under the 2010
P
lan and
have performance-based vesting
conditions
based on certain metrics through March 31, 2020
.
During the
six
months ended June 30, 2019,
the
Company granted certain officers and employees options to purchase
an aggregate of
55,000 shares of Vermillion common stock with an exercise price of $0.71 per share,
125,000 shares of Vermillion common stock with an exercise price of $0.77
per share
and 1,073,000 shares of Vermillion common stock with an exercise price of $1.29 per share. These stock options
were granted under the 2010
P
lan and
vest 25% on each of the four anniversaries of the vesting commencement date for each such stock option.
During the three months ended June 30, 2019
,
the Company granted certain officers and employees options to purchase
an aggregate of
14,000 shares of Vermillion common stock with an exercise price of $1.28 per share
and
20,000 shares of Vermillion common stock with an exercise price of $1.13
.
These stock options
were granted under the 2010
P
lan and
vest 25% on each of the four anniversaries of the vesting commencement date for each such stock option.
During the three months ended June 30, 2019
,
the Company also granted certain officers and employees options to purchase
an aggregate of
100,000 shares of Vermillion common stock with an exercise price of $1.01 per share. These stock options
were granted under the 2019
P
lan and
vest 25% on each of the four anniversaries of the vesting commencement date for each such stock option.
The allocation of employee stock-based compensation expense by functional area for the three
and six
months ended
June 30
, 2019 and 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Cost of revenue
|
|
$
|
19
|
|
$
|
23
|
|
$
|
31
|
|
$
|
47
|
Research and development
|
|
|
2
|
|
|
1
|
|
|
4
|
|
|
2
|
Sales and marketing
|
|
|
38
|
|
|
34
|
|
|
58
|
|
|
81
|
General and administrative
|
|
|
270
|
|
|
355
|
|
|
413
|
|
|
494
|
Total
|
|
$
|
329
|
|
$
|
413
|
|
$
|
506
|
|
$
|
624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
LOSS PER SHARE
The Company calculates basic loss per share using the weighted average number of shares of Vermillion common stock outstanding during the period. Because the Company is in a net loss position, diluted loss per share is calculated using the weighted average number of shares of Vermillion common stock outstanding and excludes the effects of 10,
069,924
and 7,
572,134
potential shares of Vermillion common stock as of
June 30
, 2019 and 2018, respectively, that are anti-dilutive. Potential shares of Vermillion common stock include incremental shares of Vermillion common stock issuable upon the exercise of outstanding warrants, stock options and unvested restricted stock units.
6.
RELATED PARTY TRANSACTIONS
On December 18, 2017, the Company entered into a consulting agreement for a term of up to five months with the Company’s former Senior Vice President, Finance and Chief Accounting Officer. Pursuant to the terms of the consulting agreement through May 15, 2018, the consultant provided accounting and finance services related to the transition of financial leadership
. The Company agreed to pay
$150 per hour
for such consulting services. The consultant also
remained eligible for payout under the
Company’s 2017 Corporate Incentive Plan after he satisfactorily met certain performance obligations as outlined in the consulting agreement. During the
six
months ended
June 30
, 2019 and 2018, the consultant was paid an aggregate of none and $
53,92
5 for services provided pursuant to the consulting agreement.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995.
These statements involve a number of risks and uncertainties. Words such as “may,” “expects,” “intends,” “anticipates,” “believes,” “estimates,” “plans,” “seeks,” “could,” “should,” “continue,” “will,” “potential,” “projects” and similar expressions are intended to identify such forward-looking statements. Readers are cautioned that these forward-looking statements speak only as of the date on which this Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission (the “SEC”), and, except as required by law, Vermillion, Inc. (“Vermillion” and, together with its subsidiaries, the “Company,” “we,” “our,” or “us”) does not assume any obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after such date.
Examples of forward-looking statements regarding our business include the following:
|
·
|
|
projections or expectations regarding our future test volumes, revenue
, cost of revenue, operating expenses, cash flow,
results of operations and financial condition;
|
|
·
|
|
our plan to broaden our commercial focus from ovarian cancer to differential diagnosis of women with a range of gynecological disorders;
|
|
·
|
|
our planned business strategy and the anticipated timing of the implementation thereof;
|
|
·
|
|
plans with respect to our market expansion and growth, including plans to market OVA1,
Overa
,
OVA1PLUS
and
ASPiRA GenetiX
outside the United States;
|
|
·
|
|
plans to develop new algorithms and molecular diagnostic tests;
|
|
·
|
|
plans to develop a product or tool combining an OVA1 with results of a symptom index;
|
|
·
|
|
plans to establish payer coverage for Overa
and ASPiRA GenetiX
separately
and expand coverage for OVA1;
|
|
·
|
|
intentions to address clinical questions related to early disease detection, treatment response, monitoring of disease progression, prognosis and other issues in the fields of oncology and women’s health;
|
|
·
|
|
our planned focus
on the execution of four core strategic business drivers in ovarian cancer diagnostics and specialized laboratory services to address unmet medical needs for women faced with gynecologic disease and other conditions and the continued development of our business;
|
|
·
|
|
expectations to increase research and development expenses;
|
|
·
|
|
anticipated efficacy of our products, product development activities and product innovations;
|
|
·
|
|
expected competition in the markets in which we compete;
|
|
·
|
|
plans with respect to ASPiRA LABS, Inc. (“ASPiRA LABS”);
|
|
·
|
|
expectations regarding future services provided by Quest Diagnostics Incorporated (“Quest Diagnostics”);
|
|
·
|
|
plans to expand our product offerings to additional pelvic disease conditions;
|
|
·
|
|
plans to develop an ethnicity-specific pelvic mass risk assessment;
|
|
·
|
|
plans to launch an offering to detect hereditary breast and ovarian cancer syndrome and carriers of the gene;
|
|
·
|
|
plans regarding the commercialization of Overa;
|
|
·
|
|
plans to develop informatics products and develop and perform laboratory developed tests (“LDTs”);
|
|
·
|
|
plans with respect to the Company’s pelvic mass registry, including anticipated sources of funding;
|
|
·
|
|
o
ur ability to improve sensitivity and specificity over traditional diagnostic biomarkers;
|
|
·
|
|
expectations regarding existing and future collaborations and partnerships, including OVA1, Overa,
OVA1PLUS
and
ASPiRA GenetiX
distribution agreements;
|
|
·
|
|
plans regarding future publications;
|
|
·
|
|
our
continued ability to comply with applicable governmental regulations,
expectations regarding
pending regulatory submissions and plans to seek regulatory approvals for our tests outside the United States
;
|
|
·
|
|
our ability to obtain and maintain the regulatory approvals required to market OVA1,
Overa
,
OVA1PLUS
and
ASPiRA GenetiX
in other countries;
|
|
·
|
|
our continued ability to expand and protect our intellectual property portfolio;
|
|
·
|
|
anticipated
liquidity and capital requirements
;
|
|
·
|
|
anticipated future losses and our ability to continue as a going concern;
|
|
·
|
|
expectations regarding the second disbursement from our financing arrangement, as amended, with
the State of Connecticut Department of Economic and Community Development (the “DECD”);
|
|
·
|
|
expected expenditures, including the expected increase in expenses related to sales and marketing of OVA1,
Overa
,
OVA1PLUS
and
ASPiRA GenetiX
in 2019;
|
|
·
|
|
our ability to use our net operating loss carryforwards;
|
|
·
|
|
anticipated future tax liability under U.S. federal and state income tax legislation;
|
|
·
|
|
expected market adoption of our diagnostic tests, including OVA1,
Overa
,
OVA1PLUS
and
ASPiRA GenetiX
;
|
|
·
|
|
expectations regarding our ability to launch new products we develop, license, co-market or acquire;
|
|
·
|
|
expectations regarding the size of the markets for our products;
|
|
·
|
|
expectations regarding raising capital and the amount of financing anticipated to be required to fund our planned operations; and
|
|
·
|
|
expectations regarding reimbursement for our products, and our ability to obtain such reimbursement, from third-party payers such as private insurance companies and government insurance plans.
|
Forward-looking statements are subject to significant risks and uncertainties, including
those discussed
in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018 (our “2018 Annual Report”)
, as supplemented by the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q
,
that could cause actual results to differ materially from those projected in such forward-looking statements due to various factors, including our ability to continue as a going concern; ability to increase the volume of
our product
sales; failures by third-party payers to reimburse OVA1 or Overa or changes or variances in reimbursement rates; our ability to secure additional capital on acceptable terms to execute our business plan; our ability to comply with Nasdaq’s continued listing requirements to remain publicly traded; in the event that we succeed in commercializing OVA1
,
Overa
, OVA
1
P
LUS
and ASPiRA GenetiX
outside the United States, the political, economic and other conditions affecting other countries; our ability to continue developing existing technologies; our ability to develop and commercialize additional diagnostic products and achieve market acceptance with respect to these products; our ability to compete successfully; our ability to obtain any regulatory approval required for our future diagnostic products; our or our suppliers’ ability to comply with
Food and Drug Administration (“FDA”)
requirements for production, marketing and post-market monitoring of our products; additional costs that may be required to make further improvements to our manufacturing operations; our ability to
maintain sufficient or acceptable supplies of immunoassay kits from our suppliers; our ability to continue to develop, protect and promote our proprietary technologies; our ability to use intellectual property directed to diagnose biomarkers; our ability to successfully defend our proprietary technology against third parties; future litigation against us, including infringement of intellectual property and product liability exposure; our ability to retain key employees; business interruptions; changes in healthcare policy; our ability to comply with environmental laws; our ability to comply with the additional laws and regulations that apply to us in connection with the operation of ASPiRA LABS; our ability to comply with FDA regulations that relate to our products and to obtain any FDA clearance or approval required to develop and perform LDTs
; our ability to integrate and achieve anticipated results from any acquisitions or strategic alliances
;
our ability to use our net operating loss carryforwards; and liquidity and trading volume of our common stock
.
Overview
Our vision is to drive the advancement of women’s health by providing innovative methods to detect, monitor and manage the treatment of both benign and malignant gynecologic disease.
We expanded our commercial strategy in late 2018 and in the first quarter of 2019 through
an investment in our commercial team and
the establishment of medical and advisory support and a Key Opinion Leader Network aligned with our territories in the U.S.
We ultimately plan to commercialize OVA1
,
Overa OVA1PLUS
and
ASPiRA GenetiX
on a global level.
We currently hold CE marks for OVA1 and Overa
. During 2018 we put OVA1 and Overa on a global testing platform, which allows both tests to be deployed
worldwide.
We also plan to develop an LDT product series, which we refer to internally as Diagnostic Algorithms #1 (“
DxA1
”) and Diagnostic Algorithms #2 (“DxA2”). We anticipate that DxA1 and DxA2 will include not only biomarkers, but also clinical risk factors, other diagnostics and patient history data in order to boost predictive value. In the second half of 2018 and the first quarter of 2019, we reorganized internally and reinvested in a stronger sales and marketing team in order to better position our new commercial offerings.
Our initial product, OVA1,
is a blood test designed to, in addition to a physician’s clinical assessment of a woman with a pelvic mass, identify women who are at high risk of having a malignant ovarian
tumor
prior to planned surgery.
The FDA cleared OVA1 in September 2009, and we commercially launched OVA1 in March 2010. In March 2016, we received FDA clearance for a second-generation biomarker panel known as Overa, which is intended to maintain our product’s high sensitivity while improving specificity. OVA1 and Overa each use the Roche cobas 4000, 6000 and 8000 platform
s.
In June 2014, Vermillion launched ASPiRA LABS, a Clinical Laboratory Improvements Amendments of 1988 (“CLIA”) certified national laboratory based in Austin, Texas, which specializes in applying biomarker-based technologies to address critical needs in the management of gynecologic cancers and disease. ASPiRA LABS provides expert diagnostic services using a state-of-the-art biomarker-based diagnostic algorithm to aid in clinical decision making and advance personalized treatment plans. The lab currently processes our OVA1 and Overa tests, and we plan to expand the testing to other gynecologic conditions with high unmet need. We also plan to develop and perform LDTs at ASPiRA LABS. ASPiRA LABS holds a CLIA Certificate of Registration and a state laboratory license in California, Florida, Maryland, New York, Pennsylvania and Rhode Island. This allows the lab to process OVA1 on a national basis. The
Centers
for Medicare and Medicaid Services (“CMS”) issued a provider number to ASPiRA LABS in March 2015.
In the fourth quarter of 2018, we launched our new generation of technology, OVA1
PLUS
. OVA1
PLUS
was designed to improve accuracy and reduce false elevations in the intermediate risk area by nearly 40% by leveraging the strengths of OVA1’s sensitivity and Overa’s specificity.
It is a combination of OVA1 and Overa, where Overa is used as a second test for those samples that fall in the intermediate risk zone based on the OVA1 test results. These complementary tests help drive earlier detection, which in turn lowers overall healthcare costs and reduces inefficiencies in the care pathway.
OVA1PLUS
is available through a decentralized platform structure, which will allow other facilities, including hospital networks and super groups, to perform OVA1 locally and upload raw data to us and receive the OVA1 score, enabling increased reach and access in the geographic areas we serve. We plan to eventually pursue larger-scale partnerships to leverage this decentralized platform
.
In the first quarter of 2019, we announced that Cigna added OVA1®(MIA) to its national preferred coverage list effective January 15, 2019.
I
n June 2019, we announced that
both
BlueCross BlueShield of Texas and BlueCross BlueShield of Arizona
are
now offering preferred coverage for
OVA1®(MIA)
.
I
n June
2019,
our first CA125 disparity data manuscript,
Multivariate Index Assay is Superior to CA125
and HE4 Testing in Detection of Ovarian Malignancy in African-American Women
, was published. Our second manuscript was accepted in July
2019
.
Strategy:
We are focused on the execution of four core strategic business drivers in ovarian cancer diagnostics and specialized laboratory services to build long-term value for our investors:
|
·
|
|
Maximizing the existing OVA1 opportunity in the United States by taking the lead in payer coverage and commercialization of OVA1. This strategy included the launch of a
CLIA
certified clinical laboratory, ASPiRA LABS, in June 2014, multiple publications, inclusion in the
American College of Obstetricians and Gynecologists ("
ACOG”) adnexal mass guidelines, payer traction and finally the addition of OVA1 to CMS National Fee schedule as of January 2018;
|
|
·
|
|
Expanding the distribution platform beyond the U.S. by launching Overa, a next generation biomarker panel, while building the clinical utility and health economics foundation of both OVA1 and Overa, which we believe may allow for better domestic market penetration and international expansion;
|
|
·
|
|
Leveraging our existing database and specimen bank while building the largest specimen and data repository of gynecologic pelvic mass patients worldwide; and
|
|
·
|
|
Expanding our product offerings to additional
women’s health diseases with a focus on
pelvic disease conditions such as endometriosis and polycystic ovarian syndrome
(“PCOS”)
by adding additional gynecologic bio-analytic solutions involving biomarkers, other modalities (
e.g.
, imaging), clinical risk factors and patient data to aid diagnosis and risk stratification of women presenting with a pelvic mass.
|
We believe that these business drivers will contribute significantly to addressing unmet medical needs for women faced with gynecologic disease and other conditions and the continued development of our business.
We have active international distribution agreements for Overa with Pro-Genetics LTD in Israel and MacroHealth, Inc. in the Philippines. The MacroHealth, Inc. agreement was our first decentralized international agreement with Overa specimen testing to be performed in the Philippines.
In the United States, revenue for diagnostic tests comes from several sources, including third-party payers such as insurance companies, government healthcare programs, such as Medicare and Medicaid, client bill accounts and patients. Novitas Solutions, a Medicare contractor, covers and reimburses for OVA1
tests performed in certain states, including Texas. Due to OVA1 tests being performed exclusively at ASPiRA LABS in Texas, the local coverage determination from Novitas Solutions essentially provides national coverage for patients enrolled in Medicare as well as Medicare Advantage health plans. ASPiRA LABS also bills third-party commercial and other government payers as well as client bill accounts and patients for OVA1.
In November 2016, the ACOG issued Practice Bulletin Number 174 which included OVA1 as a “Multivariate Index Assay”
,
outlin
ing
ACOG's clinical management guidelines for adnexal mass management.
Practice Bulletin Number 174 recommends that obstetricians and gynecologists evaluating women with adnexal masses who do not meet Level A criteria of a low risk transvaginal ultrasound should proceed with Level B clinical guidelines. Level B guidelines state that the physician may use risk assessment tools such as existing CA125 technology or OVA1 (“Multivariate Index Assay”) as listed in the bulletin. Based on this, OVA1 achieved parity with CA125 as a Level B clinical recommendation for the management of adnexal masses.
Practice Bulletins summarize current information on techniques and clinical management issues for the practice of obstetrics and gynecology. Practice Bulletins are evidence-based documents, and recommendations are based on the evidence.
This is also the only clinical management tool used for adnexal masses. Although there are
Practice Bulletins, guidelines do not exist for adnexal masses. ACOG guidelines do exist, however, for ovarian cancer management.
In October 2018, ASPiRA LABS launched OVA1
PLUS
, a new clinical pathway which combines the strengths of OVA1® and Overa®. The new offering improves accuracy and reduces false elevated risk results by nearly 40%.
In the fourth quarter of 2018, we launched our new platform and cloud service for decentralizing OVA1 testing. The platform and web service will allow other facilities to perform OVA1 and calculate OVA1 scores locally, enabling increased reach and access in the markets we serve.
Recent Developments
In parallel to building our OVA platform offering and our commercial deployment, we have been working on several key publications and product extensions.
In May 2019, our first CA125 disparity publication series “Multivariate Index Assay is Superior to CA125 and HE4 Testing in Detection of Ovarian Malignancy in African American Women” was accepted for publication by Biomarkers in Cancer, an international peer-reviewed journal. The research was initiated after the publication of four independent articles showing that African American and non-Caucasian women have lower CA125 levels than Caucasian women. CA125 and HE4 have been used to evaluate women with pelvic masses to determine clinical management. Our review of data from previous prospective studies from ASPiRA Labs revealed that the OVA1 multivariate index assay had superior sensitivity to CA125 and HE4 in detecting ovarian malignancy with marked increases in the African American population. CA125 and HE4 detected only 54.5% of malignancy while OVA1 was able to detect 79.1% in African American women. OVA1 was superior in Caucasian women as well at 93.2% versus 82.9% for CA125 and HE4. This is the first peer reviewed paper on this topic. Our goal is to offer an ethnicity specific pelvic mass risk assessment starting with African American women.
In addition to an ethnicity-specific risk assessment, we are in the development stage of a third generation algorithm. The new test will
have
a
negative predictive value
of greater than 99%
, which will
allow physicians to monitor women with a mass to delay or avoid unnecessary surgery.
In May 2019, we submitted an abstract to the European Society of Gynaecological Oncology, as well as a manuscript to a domestic journal
supporting the launch of our test. The test will initially be launched as an LDT
in the fourth quarter of 2019
, but the prospective monitoring study will be designed to enable us to submit for FDA clearance if we choose to do so.
In June 2019, we launch
ed
genetic testing for specific women’s health diseases
, called ASPiRA
GenetiX
,
with a core focus on ovarian cancer. Our initial launch
is
an offering to detect
hereditary breast and ovarian cancer syndrome (“HBOC”) and carriers of the gene.
Women who test positive for HBOC mutations
have a significantly elevated risk of developing ovarian cancer. This complementary product offering will be at the same call point as OVA1
PLUS
, and, in time, testing results will be reported in a combined report with OVA1
PLUS
.
In June 2019, a study was published indicating that in a comparison of Overa against ROMA
(
HE4 + CA125) and CA125
, Overa
,
had the highest performance in early stage ovarian cancer risk (90.5
%
sensitivity)
assessment outperforming ROMA (HE4 + CA125) (76.2
%
sensitivity) and CA125 (63.1
%
sensitivity).
In July 2019, a new study was accepted for publication
indicating
that Overa,
when used in conjunction with imaging methods as part of a clinical workup for an adnexal mass
,
increased sensitivity
over imaging alone.
Critical Accounting Policies and Estimates
Our product revenue is generated by performing diagnostic services using our OVA1 and Overa tests, and the service is completed upon the delivery of the test result to the prescribing physician.
Under the previous revenue recognition accounting methodology, certain
product revenue was recognized upon the ultimate receipt of cash. Under ASC Topic 606,
Revenue from Contracts with Customers
(“
ASC 606”), all revenue is recognized
upon completion of the OVA1 or Overa test based on estimates of amounts that will ultimately be realized. In determining the amount to accrue for a delivered test result, we consider factors such as historical payment history and amount,
payer coverage, whether there is a reimbursement contract between the payer and us, and any current developments or changes that could impact reimbursement. These estimates require significant judgment by management.
We also reviewed our patient account population and determined an appropriate distribution of patient accounts by payer (
i.e.
, Medicare, patient pay, other third-party payer,
etc
.) into portfolios with similar collection experience. When evaluated for collectability, this results in a materially consistent revenue amount for such portfolios as if each patient account were evaluated on an individual contract basis.
Results of Operations - Three Months Ended
June 30
, 2019 Compared to Three Months Ended
June 30
, 2018
The selected summary financial and operating data of the Company for the three months ended
June 30
, 2019
and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Increase (Decrease)
|
(dollars in thousands)
|
|
2019
|
|
2018
|
|
Amount
|
|
%
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
1,100
|
|
$
|
627
|
|
$
|
473
|
|
75
|
Service
|
|
|
42
|
|
|
81
|
|
|
(39)
|
|
(48)
|
Total revenue
|
|
|
1,142
|
|
|
708
|
|
|
434
|
|
61
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
698
|
|
|
528
|
|
|
170
|
|
32
|
Service
|
|
|
210
|
|
|
280
|
|
|
(70)
|
|
(25)
|
Total cost of revenue
|
|
|
908
|
|
|
808
|
|
|
100
|
|
12
|
Gross profit (loss)
|
|
|
234
|
|
|
(100)
|
|
|
334
|
|
334
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
225
|
|
|
154
|
|
|
71
|
|
46
|
Sales and marketing
|
|
|
2,780
|
|
|
1,478
|
|
|
1,302
|
|
88
|
General and administrative
|
|
|
1,534
|
|
|
1,299
|
|
|
235
|
|
18
|
Total operating expenses
|
|
|
4,539
|
|
|
2,931
|
|
|
1,608
|
|
55
|
Loss from operations
|
|
|
(4,305)
|
|
|
(3,031)
|
|
|
(1,274)
|
|
42
|
Interest income (expense), net
|
|
|
(2)
|
|
|
(7)
|
|
|
5
|
|
(71)
|
Other income (expense), net
|
|
|
(7)
|
|
|
(11)
|
|
|
4
|
|
(36)
|
Net loss
|
|
$
|
(4,314)
|
|
|
(3,049)
|
|
$
|
(1,265)
|
|
41
|
Product Revenue
. Product revenue was $
1,100
,000 for the three months ended
June 30
, 2019
compared to $
627
,000 for the same period in 2018. Revenue for ASPiRA LABS is being recognized when the OVA1 test is being performed based on estimates of what we expect to ultimately realize. The
75
% product revenue increase is due to an increase in
the number of
our tests performed.
We expect revenue to increase over the remainder of the year as the sales team
continues to
execute
its
strategy
.
The number of OVA1 tests performed increased
66
% to approximately
3,129
OVA1 tests during the three months ended
June 30
, 2019
compared to approximately 1,
884
OVA1 tests for the same period in 2018.
We expect the test volume to improve over the remainder of the year as we continue to realize
returns from
our sales and marketing investments.
Service Revenue
. Service revenue was $
42
,000 for the three months ended
June 30
, 2019
compared to $
81
,000 for the same period in 2018. Service revenue varies from quarter to quarter based on the stages of ongoing customer projects. Revenue for ASPiRA IVD is being recognized once certain revenue recognition criteria have been met. We expect service revenue to
de
crease in the
third
quarter of 2019 compared to the
second
quarter of 2019.
Cost of Revenue - Product.
Cost of product revenue was $
698
,000 for the three months ended
June 30
, 2019
compared to $
528
,000 for the same period in 2018, representing a
n
increase
of 3
2
% due primarily to
increases in postage costs due to new kits, partially offset by
decreases in depreciation and equipment costs. We expect the cost of product revenue to increase
slightly
in the
third
quarter of 2019 compared to the
second
quarter of 2019.
Cost of Revenue - Service.
Cost of service revenue was $
210
,000 for the three months ended
June 30
, 2019
compared to $
280
,000 for the same period in 2018. The
25
% decrease related primarily to lower headcount and
depreciation
. We expect the cost of service revenue to fluctuate consistent with service revenue to some extent
. However
, due to the fixed nature of the costs, we expect the
third
quarter costs to be largely consistent with those of the
second
quarter.
Research and Development Expenses
. Research and development expenses represent costs incurred to develop our technology and carry out clinical studies, and include personnel-related expenses, regulatory costs, reagents and supplies used in research and development laboratory work, infrastructure expenses, contract services and other outside costs. Research and development expenses for the three months ended
June 30
, 2019
increased by $
71
,000, or
46
%, compared to the same period in 2018. This increase was primarily due to purchases required for a study in 2019,
as well as an increase
in consulting expenses. We expect research and development expenses to increase slightly from the
second
to the
third
quarter of 2019 due to expenses in connection with the completion of ongoing studies and publications.
Sales and Marketing Expenses
. Our sales and marketing expenses consist primarily of personnel-related expenses, education and promotional expenses, and infrastructure expenses. These expenses include the costs of educating physicians and other healthcare professionals regarding OVA1 and Overa. Sales and marketing expenses also include the costs of sponsoring continuing medical education, medical meeting participation, and dissemination of scientific and health economic publications. Sales and marketing expenses for the three months ended
June 30
, 2019
increased $1,
302
,000, or
88
%, compared to the same period in 2018. This increase was primarily due to increased headcount and personnel-related expenses in the
second
quarter of 2019 compared to 2018. We expect sales and marketing expenses to
decrease
modestly over the remainder of 2019
due to the termination of some consulting contracts
,
as well as the
completing
the expansion of our sales team
.
General and Administrative Expenses
. General and administrative expenses consist primarily of personnel-related expenses, professional fees and other costs, including legal, finance and accounting expenses and other infrastructure expenses. General and administrative expenses for the three months ended
June 30
, 2019
in
creased by $
235
,000, or
1
8%, compared to the same period in 2018. This
in
crease is primarily due to a
n
in
crease in
headcount
and personnel-related expenses
, as well as some startup costs for the launch of our genetics offering
in the
second
quarter of 2019 when compared with those in the
second
quarter of 2018. We expect general and administrative expenses to remain consistent with the
second
quarter in the
third
quarter of 2019.
Results of Operations – Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
The selected summary financial and operating data of the Company for the three months ended
June 30, 2019
and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Increase (Decrease)
|
(dollars in thousands)
|
|
2019
|
|
2018
|
|
Amount
|
|
%
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
1,879
|
|
$
|
1,240
|
|
$
|
639
|
|
52
|
Service
|
|
|
66
|
|
|
117
|
|
|
(51)
|
|
(44)
|
Total revenue
|
|
|
1,945
|
|
|
1,357
|
|
|
588
|
|
43
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
1,214
|
|
|
1,061
|
|
|
153
|
|
14
|
Service
|
|
|
388
|
|
|
550
|
|
|
(162)
|
|
(29)
|
Total cost of revenue
|
|
|
1,602
|
|
|
1,611
|
|
|
(9)
|
|
(1)
|
Gross profit (loss)
|
|
|
343
|
|
|
(254)
|
|
|
597
|
|
235
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
434
|
|
|
296
|
|
|
138
|
|
47
|
Sales and marketing
|
|
|
5,144
|
|
|
2,703
|
|
|
2,441
|
|
90
|
General and administrative
|
|
|
2,789
|
|
|
2,613
|
|
|
176
|
|
7
|
Total operating expenses
|
|
|
8,367
|
|
|
5,612
|
|
|
2,755
|
|
49
|
Loss from operations
|
|
|
(8,024)
|
|
|
(5,866)
|
|
|
(2,158)
|
|
37
|
Interest income (expense), net
|
|
|
5
|
|
|
(19)
|
|
|
24
|
|
126
|
Other income (expense), net
|
|
|
(11)
|
|
|
(14)
|
|
|
3
|
|
21
|
Net loss
|
|
$
|
(8,030)
|
|
|
(5,899)
|
|
$
|
(2,131)
|
|
36
|
Product Revenue
.
Product re
venue was $
1,87
9,000 for the six
months ended
June 30
, 2019
compared to $
1,240
,000 for the same period in 2018. The
52
% product revenue increase is due to an increase in our tests performed
,
as well as improvement in our price per test
.
The number of OVA1 tests performed increased
4
7% to approximately
5,442
OVA1 tests during the
six
months ended
June 30
, 2019
compared to approximately
3,702
OVA1 tests for the same period in 2018.
Service Revenue
. Servi
ce revenue was $
66
,000 for the six
months ended
June 30
, 2019
compared to $
117
,000 for the same period in 2018. Service revenue varies from quarter to quarter based on the stages of ongoing customer projects.
Cost of Revenue - Product.
Cost of product re
venue was $
1,214
,000 for the six
months ended
June 30
, 2019
compared to $
1,061
,000 for the same period in 2018, representing a
n
in
crease of
14
% due
to
increases in postage costs due to new kits, partially offset by decreases in depreciation and equipment costs
incurred in 2019.
Cost of Revenue - Service.
Cost of service re
venue was $
338
,000 for the six
months ended
June 30
, 2019
compared to $
550
,000 for the same period in 2018. The
29
% decrease related primarily to lower headcount
,
lab supplies
and depreciation
.
Research and Development Expenses
. Research and de
velopment expenses for the six
months ended
June 30, 2019
increased by $138,000, or 47%, compared to the same period in 2018. This increase was primarily d
u
e to
clinical utility studies
in 2019.
Sales and Marketing Expenses
. Sales and
marketing expenses for the six
months ended
June 30
, 2019
increased $
2,441
,000, or 9
0
%, compared to the same period in 2018. This increase was primarily due to increased headcount and personnel-related expenses, partially offset by decreased consulting costs in 2019 compared to 2018.
General and Administrative Expenses
. General and administrative expenses for the
six
months ended
June 30
, 2019
in
creased by $1
76
,000, or
7
%, compared to the
same period in 2018. This increase is primarily due to an increase in headcount, as well as increases to consulting and legal costs in 2019 when compared with those in 2018.
Liquidity and Capital Resources
We plan to continue to expend resources selling and marketing OVA1,
Overa
,
OVA1PLUS
and
ASPiRA GenetiX
and developing additional diagnostic tests and service capabilities.
We have incurred significant net losses and negative cash flows from operations since inception. At
June 30
, 2019
, we had an accumulated deficit of $41
4,954
,000 and stockholders’ equity of $
13,366
,000. As of
June 30
, 2019
, we had $
1
6
,
179
,000 of cash and cash equivalents and $3,
561
,000 of current liabilities.
The Company expects to incur a net loss in 2019 as well.
Working capital was $1
4,004
,000 and $
7,824
,000 at June 30, 201
9
and December 31, 201
8
, respectively.
On June 28, 2019, the Company completed
the O
ffering pursuant to which certain investors purchased Vermillion common stock for net proceeds of approximately $13,
800
,000 after deducting
underwriting
discounts
,
commissions
and certain underwriting expenses
but before deducting other
expenses payable by us
.
On July
2, 2019, William Blair & Company, L.L.C., the sole underwriter of the
O
ffering
, exercised its option to purchase additional
shares of
Vermillion common stock for net proceeds of $2,092,500
,
after deducting underwriting discounts and commissions
.
On April 17, 2018, the Company completed the
2018
Offerings pursuant to which certain investors purchased shares of Vermillion common stock and shares of Vermillion Series B Convertible Preferred Stock for net proceeds of approximately $13,500,000 after deducting offering expenses.
On March 22, 2016, we entered into the Loan Agreement pursuant to which we may borrow up to $4,000,000 from the DECD. Proceeds from the loan were utilized primarily to fund the build-out, information technology infrastructure and other costs related to our Trumbull, Connecticut facility and operations. The loan bears interest at a fixed rate of 2.0% per annum and requires equal monthly payments of principal and interest until maturity, which occurs on April 15, 2026. As security for the loan, we have granted the DECD a blanket security interest in our personal and intellectual property. The DECD’s security interest in our intellectual property may be subordinated to a qualified institutional lender. Under the terms of the agreement, as amended, we may be eligible for forgiveness of up to $2,000,000 of the principal amount of the loan if we achieve certain job creation and retention milestones by March 1, 2021 (the “Measurement Date”). Conversely, if we are either unable to meet these job creation and retention milestones, namely, hiring and retaining for a consecutive two-year period 40 full-time employees with a specified average annual salary by the Measurement Date or do not maintain our Connecticut operations for a period of 10 years, the DECD may require early repayment of a portion or all of the loan depending on job attainment as compared to the required amount plus a penalty of 5% of the total funded loan.
An initial disbursement of $2,000,000 was made to the Company on April 15, 2016 under the Loan Agreement. The remaining $2,000,000 will be advanced if and when the Company achieves certain other future milestones. The loan may be prepaid at any time without premium or penalty.
We expect to incur a net loss and negative cash flows from operations in 2019. Our management believes that successful achievement of our business objectives may require additional
capital
.
The Company expects to raise capital, if necessary, through a variety of sources, which may include the exercise of common stock warrants, equity offerings, debt financing, collaborations, licensing arrangements, grants and government funding and strategic alliances. However, additional funding may not be available when needed or on terms acceptable to the Company. If the Company is unable to obtain additional capital, it may not be able to continue sales and marketing, research and development, or other operations on the scope or scale of current activity and that could have a material adverse effect on the Company’s business, results of operations and financial condition.
Net cash used in operating activities was $
6,652
,000 for the
six
months ended
June 30
, 2019
, resulting primarily from the net loss reported of $
8,030
,000, partially offset by changes in
stock compensation expense of $597,000,
accounts payable, accrued and other liabilities of $
509
,000, and depreciation and amortization of $
215
,000.
Net cash used in operating activities was $
4,776
,000 for the
six
months ended
June 30
, 2018, resulting primarily from the net loss reported of $
5,899
,000 partially offset by
stock compensation expense of $543,000,
depreciation and amortization of $
370
,000 and changes in accounts payable, accrued and other liabilities of $
74
,000.
Net cash used in investing activities was $
82
,000 and $
34
,000 for the
six
months ended
June 30
, 2019
and 2018, respectively, which consisted primarily of property and equipment purchases.
Net cash
provided by
financing activities was $
13,553
,000 and $
13,406
,000 for the
six
months ended
June 30
, 2019 and 2018, respectively
, which resulted primarily from the
proceeds from the sale of
Vermillion common stock of $
13,630
,000 in our
June 2019
public offering.
Our future liquidity and capital requirements will depend upon many factors, including, among others:
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·
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resources devoted to sales, marketing and distribution capabilities;
|
|
·
|
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the rate of OVA1,
Overa
,
OVA1PLUS
and
ASPiRA GenetiX
product adoption by physicians and patients;
|
|
·
|
|
the insurance payer community’s acceptance of and reimbursement for OVA1,
Overa
,
OVA1PLUS
and
ASPiRA GenetiX
;
|
|
·
|
|
the successful targeted launch of
Overa
,
OVA1PLUS
and
ASPiRA GenetiX
;
|
|
·
|
|
resources devoted to our IVD trials laboratory and services;
|
|
·
|
|
the revenue generated by our IVD trial services business;
|
|
·
|
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our plans to acquire or invest in other products, technologies and businesses; and
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·
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the market price of our common stock.
|
We have significant net operating loss (“NOL”)
carryforwards
as of
June 30
, 2019
for which a full valuation allowance has been provided due to our history of operating losses. Section 382 of the Internal Revenue Code of 1986, as amended, as well as similar state provisions
may restrict our
ability to use our
NOL credit carryforwards
due to ownership change limitations occurring in the past or that could occur in the future
. These ownership changes may also limit the amount of NOL credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively.
Legislation commonly referred to as the Tax Cuts and Jobs Act (H.R. 1) was enacted
in
December
2017. As a result of the Tax Cuts and Jobs Act, NOLs arising before January 1, 2018 and NOLs arising after January 1, 2018 are subject to different rules. The Company’s pre-2018 NOLs will expire in varying amounts from 2023 through 2037, if not utilized, and can offset 100% of future taxable income for regular tax purposes. Any NOLs arising after January 1, 2018 can generally be carried forward indefinitely and can offset up to 80% of future taxable income. The Company’s ability to use its NOLs during this period will be dependent on its ability to generate taxable income, and the NOLs could expire before the Company generates sufficient taxable income. The Company’s ability to use NOL carryforwards may be restricted due to ownership change limitations occurring in the past or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”), as well as similar state specific provisions. These ownership changes may also limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively.
The Company’s management believes that Section 382 ownership changes occurred as a result of the Company’s follow-on public offerings in 2011, 2013 and 2015. Any limitation may result in the expiration of a portion of the NOL carryforwards before utilization and any NOL carryforwards that expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the Company’s valuation allowance. Due to the existence of a valuation allowance, it is not expected that such limitations, if any, will have an impact on the Company’s results of operations or financial position.
Off-Balance Sheet Arrangements
As of
June 30
, 2019
, we had no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our
condensed
consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.
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ITEM 3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Per Item 305(e) of Regulation S-K, the information
called for by this Item 3
is not required.
|
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ITEM 4.
|
CONTROLS AND PROCEDURES
|
Evaluation of disclosure controls and procedures.
Our senior management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) designed to ensure that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
June 30
, 2019
. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of
June 30
, 2019
, our disclosure controls and procedures were effective.
Changes in internal controls over financial reporting.
There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.