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)









See accompanying notes to the unaudited condensed consolidated financial statements.

Vermillion, Inc.

Condensed Consolidated Statements of Cash Flows

(Amounts in Thousands)

(Unaudited)







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”) is incorporated in the state of Delaware, and is engaged in the business of developing and commercializing diagnostic tests for gynecologic disease.  In March 2010, theThe Company commercially launchedsells OVA1™ risk of malignancy test for pelvic mass diseaseovarian cancer (“OVA1”). TheUntil August 10, 2015, the Company distributed OVA1 through Quest Diagnostics Incorporated (“Quest Diagnostics”) (see Note 2) through August 10, 2015.. Since August 10, 2015, the Company has distributed all but a nominal number of OVA1 tests distributed through Quest Diagnostics through itsVermillion’s wholly-owned Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) certified clinical laboratory, ASPiRA LABS, Inc. (“ASPiRA LABS”), which opened in June 2014.  The Company also plans to offer in-vitro diagnostic (“IVD”) trial services to third-party customers through its wholly-owned subsidiary, ASPiRA IVD, Inc. (“ASPiRA IVD”), which was formed in April 2016. The Company plans for ASPiRA IVD to be a specialized laboratory provider dedicated to meeting the unique testing needs of IVD manufacturers seeking to commercialize high-complexity assays. The Company’s goal is to build ASPiRA IVD around a core of laboratory expertise and a United States Food and Drug Administration (“FDA”)-compliant quality system, with an emphasis on delivering accurate and reliable results to its third-party customers suitable for FDA submission.

LiquidityGoing Concern

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 $375,485,000 at March 31, 2016. The Company expects to incur a net loss and negative cash flows from operations in 2016 and the foreseeable future. The Company’s management believes that successful achievement of the Company’s business objectives will require additional financing. Given these conditions, there is substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements have been prepared on a going concern basis and do not include any adjustments that might result from these uncertainties.

The Company believesexpects to raise capital through a variety of sources, which may include the public equity market, private equity financing, collaborative arrangements, licensing arrangements, and/or public or private debt. 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 its working capital position asbusiness, results of operations and financial condition.

As discussed in Note 3, on March 22, 2016, the dateCompany 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 filing of this Quarterly ReportCompany on Form 10-QApril 15, 2016 under the Loan Agreement. The Loan Agreement provides that the remaining $2,000,000 will be sufficient to meetdisbursed if and when the Company’s working capital needs for at least the next 12 months.Company achieves certain future milestones. 

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, 20142015 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, 2014,2015, included in Vermillion’s Annual Report on Form 10-K which was filed with the Securities and Exchange Commission on March 31, 2015.30,  2016 (the “2015 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.

Certain reclassifications of prior year amounts have been made to conform to current year presentation.



Significant Accounting and Reporting Policies

Revenue Recognition

The Company has adopted ASC 954-605,Health Care Entities—Revenue Recognition as revenue from laboratory services has become more significant to the Company.The Company's revenue is generated by performing diagnostic services using its OVA1 test, and the service is completed upon the delivery of test results to the prescribing physician. The Company recognizes revenue related to billings for Medicare and commercial payers on an accrual basis, net of contractual and other adjustments, when amounts that will ultimately be realized can be estimated. Until a contract has been negotiated with a commercial payer or governmental program, the OVA1 test may or may not be covered by these entities' existing reimbursement policies. In addition, patients do not enter into direct agreements with the Company that commit them to pay any portion of the cost of the tests in the event that their insurance declines to reimburse the Company. In the absence of an agreement with the patient or other clearly enforceable legal right to demand payment from the patient, the related revenue is only recognized upon cash receipt.

Estimates of amounts that the Company will ultimately realize require significant judgment by management. Some patients have out-of-pocket costs for amounts not covered by their insurance carrier, and the Company may bill the patient directly for these amounts in the form of co-payments and co-insurance in accordance with the patient’s health plan. Some payers may not cover the OVA1 test as ordered by the prescribing physician under their reimbursement policies. The Company pursues reimbursement from such patients on a case-by-case basis. In the absence of contracted reimbursement coverage or the ability to estimate the amount that will ultimately be realized for the Company's services, revenue is recognized when cash is received.

Revenue recognized when cash is received and on an accrual basis for the three months ended March 31, 2016 and 2015 was as follows:

The Company has made no other significant changes in its critical accounting policies and estimates from those disclosed in Vermillion’sthe 2015 Annual Report on Form 10-K for the fiscal year ended December 31, 2014. 

In July 2015, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2015-11 Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU No. 2015-11”). ASU 2015-11 changes the measurement of inventory from the lower of cost or market to the lower of cost and net realizable value. The amendments are effective prospectively for the fiscal years, and interim reporting periods within those years, beginning on or after December15, 2016. The Company does not anticipate a material impact on its consolidated financial statements from the adoption of this ASU.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU 2014-09 removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets, provides more useful information to users of financial statements through improved disclosure requirements and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. This guidance requires that an entity depict the consideration by applying a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. On April 1, 2015, the FASB voted for a one-year deferral of the effective date of the new revenue recognition standard, ASU No. 2014-09.On July 15, 2015, the FASB affirmed these changes, which requires public entities to apply the amendments in ASU 2014-09 for annual reporting beginning after December 15, 2017. Early adoption is permitted beginning after December 31, 2016, the original effective date in ASU 2014-09. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.Report. 



2.   AGREEMENTS WITH QUEST DIAGNOSTICS INCORPORATED

In July 2005, the Company entered into a Strategic Alliance Agreement (as amended, the “Strategic Alliance Agreement”) with Quest Diagnostics to develop and commercialize up to three diagnostic tests including OVA1, from the Company’s product pipeline.  In connection with the Strategic Alliance Agreement, the Company entered into a credit agreement with Quest Diagnostics, pursuant to which Quest Diagnostics provided the Company with a $10,000,000 secured line of credit to be used to pay for certain costs and expenses related to activities under the Strategic Alliance Agreement. This line of credit was collateralized by certain of the Company’s intellectual property assets. The credit agreement provided for the forgiveness of portions of the amounts borrowed under the secured line of credit upon the achievement of certain milestones related to the development, regulatory approval and commercialization of certain diagnostic tests. Through December 31, 2014, the entire loan was either repaid or forgiven except for $1,106,000 which was in dispute. The dispute regarding the balance of the loan was resolved on March 11, 2015 for a payment to Quest Diagnostics totaling $1,069,000. As a result of this settlement, the Company recognized one-time items during the three monthsyear ended MarchDecember 31, 2015, including product revenue of $163,000, license revenue of $202,000, gain on extinguishment of debt of $37,000 and reversal of other liabilities totaling $41,000.

Unrelated to the debt dispute described above, in August 2013, the Company sent Quest Diagnostics a notice of termination of the Strategic Alliance Agreement. Notwithstanding the termination, the Company agreed that Quest Diagnostics could continue to make OVA1 available to healthcare providers on the same financial terms following the termination while negotiating in good faith towards an alternative business structure. Quest Diagnostics disputed the effectiveness of the termination. Prior to the termination, Quest Diagnostics had the non-exclusive right to commercialize OVA1 on a worldwide basis, with exclusive commercialization rights in the clinical reference laboratory marketplace in the United States, India, Mexico, and the United Kingdom through September 2014, with the right to extend the exclusivity period for one additional year.

On March 11, 2015, the Company reached a settlement agreement with Quest Diagnostics that terminated all disputes related to the Strategic Alliance Agreement and the Company’s prior loan agreement with Quest Diagnostics. The Company also entered into a new commercial agreement with 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 10, 2015, with the exception of a nominal number of OVA1 tests distributed through Quest Diagnostics after that date. 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, 2017 in exchange for a market value fee. Per the terms of the new commercial agreement, the Company will not offer to existing or future Quest Diagnostics customers CA 125-II or other tests that Quest Diagnostics offers.

On June 17, 2015, the Company entered into a Share Repurchase Agreement (the “Share Repurchase Agreement”) with Quest Diagnostics. Pursuant to the Share Repurchase Agreement, the Company purchased from Quest Diagnostics 860,595 shares of Vermillion common stock for a total purchase price of $1,290,892, or $1.50 per share. The price per share was agreed to in principle in March 2015 and based upon a simple average of the closing prices per share of Vermillion common stock for a trailing 60-day period at that time. This price was then reduced by a negotiated discount. Subsequently, the common stock repurchased from Quest Diagnostics was retired.

3.   COMMITMENT AND CONTINGENCIES

Development Loan

On March 22, 2016, the Company entered into the Loan Agreement, pursuant to which the Company may borrow up to $4,000,000 from the DECD. Proceeds from the loan are to be 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, 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, 2018. If the Company is unable to meet these job creation milestones within the allotted timeframe 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.

An initial disbursement of $2,000,000 was made to the Company on April 15, 2016 under the Loan Agreement. The Loan Agreement provides that the remaining $2,000,000 will be disbursed if and when the Company achieves certain 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, including its principal facility and CLIA laboratory located nearin Austin, Texas. TheAs of March 31, 2016 there were two Austin, Texas leases includewhich included an aggregate annual base rent of $130,000$115,000 and annual estimated common area charges, taxes and insurance of $62,000 and expire at various times prior to$58,000. The lease which includes the CLIA laboratory expires on May 31, 2016.2017 and an additional lease is month to month and requires 90 days’ notice to cancel. 

OnIn October 7, 2015, the Company entered a lease agreement for a facility in Trumbull, Connecticut. The lease includesrequired initial payments for the buildout of leasehold improvements to the office space, which are estimated to bewere approximately $438,000.$596,000. The term of the lease is five years beginning after the initial date of occupancy on January 8, 2016 and a rent abatement period of five months. The lease includes an aggregate annual base rent of $32,000 in addition toand annual estimated common area charges, taxes and insurance.  insurance of $91,000.  

Rental expense under operating leases for the three months ended March 31, 2016 and 2015 totaled $51,000 and $42,000, respectively.

Capital Lease

In April 2015, the Company agreed to lease two laboratory instruments for a total initial payment of $250,000 and ongoing payments of approximately $7,000 per month for 36 months after delivery. The agreement also requires minimum annual purchases of reagents from the manufacturer of the equipment. As of September 30, 2015,March 31, 2016,  one instrument has been delivered and placed into service.

The accumulated amortization of assets under capital lease obligations was $58,000 and the net book value of assets under capital lease obligations was $174,000 as of March 31, 2016. There were no assets under capital lease obligations as of March 31, 2015.

Non-cancelable Royalty Obligations

The Company is a party to an amended research collaboration agreement with The Johns Hopkins University School of Medicine (“JHU”) 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 March 31, 2016 and 2015 totalled $20,000 and $25,000, respectively.

4.   STOCKHOLDERS’ EQUITY

On July 17, 2015 the Company completed the sale of 9,602,500 shares of Vermillion common stock, including 1,252,500 shares sold pursuant to the full exercise of the underwriters' option to purchase additional shares, in an underwritten public offering at a price of $1.96 per share. The Company received net proceeds from the offering of $17,496,000 after deducting underwriting discounts and offering expenses.

2010 Stock Incentive Plan

The Company’s employees, directors, and consultants are eligible to receive awards under the Vermillion, Inc. Second Amended and Restated 2010 Stock Incentive Plan (the “2010 Plan”). The 2010 Plan permits the granting of a variety of awards, including stock options, share appreciation rights, restricted shares, restricted share

units, unrestricted shares, deferred share units, performance and cash-settled awards, and dividend equivalent rights. The 2010 Plan provides for issuance of up to 8,122,983 shares of Vermillion common stock, under the 2010 Plan, subject to adjustment as provided in the 2010 Plan.

Employee Stock-Based Compensation

During the ninethree months ended September 30, 2015,March 31, 2016, the Company awarded to Vermillion’s non-employee directors 211,000 shares of restricted stock under the 2010 Plan having a fair value of approximately $332,000 as payment for services to be rendered in 2016. These shares of restricted stock will vest 50% on June 1, 2016 and 25% on each of September 1, 2016 and December 1, 2016. The Company also granted to the Company’s President and Chief Executive Officercertain consultants options to purchase 400,000100,000 shares of Vermillion common stock with an exercise price of $1.95$1.64 per share. These50,000 of these stock options vest in 48 equal monthly instalments from the date25% on each of the grant. Duringfour anniversaries of the nine months ended September 30, 2015,grant date, and the remaining 50,000 of these stock options have performance-based vesting based on certain metrics through December 31, 2016. The Company also granted to certain Vermillion officersemployees retention options to purchase 275,00035,000 shares of Vermillion common stock with an exercise price of $2.08$1.64 per share and granted to certain Vermillion employeesretention options to purchase 45,00073,000 shares of Vermillion common stock with an exercise price of $1.77. These stock options$1.37 per share, each of which vest 25% on the first anniversary ofone year from the grant date,date. The Company also granted certain officers and the remaining stock options vest ratably over the following 36-month period. During the nine months ended September 30, 2015, the Company granted to a Vermillion officeremployees options to purchase 150,000approximately 886,000 shares of Vermillion common stock with an exercise price of $1.74$1.57 per share. 25%All but 4,000 of these stock options vest on the first anniversary of the grant date, and the remaining stock options vest ratably over the following 36-month period. The Company also granted to officers and employees of the Company options to purchase 317,000 shares of Vermillion common stock with an exercise price of $2.03 per share. These stock options vest 25% on each of the four anniversaries of the grant date. The Company also granted to employees ofremaining 4,000 stock options vest fully on February 5, 2017. In addition, during the three months ended March 31, 2016 the Company granted certain officers and employees options to purchase 37,500250,000 shares of Vermillion common stock with an exercise price of $2.05 per share. These stock options vest 25% on each of the four anniversaries of the grant date. In addition, the Company granted certain officers options to purchase 400,000 shares of Vermillion common stock with an exercise price of $2.03approximately $1.57 per share with performance-based vesting based on certain metrics through December 31, 2016.

During the nine months ended September 30, 2015, the Company awarded 181,369 shares of restricted stock under the 2010 Plan having a fair value of approximately $370,000 to Vermillion’s Board of Directors as stock-based payment for services rendered in 2015. 50% of these shares of restricted stock vested on July 13, 2015.  25% of these shares of restricted stock vested on September 1, 2015, and the remaining 25% will vest on December 1, 2015.

During the nine months ended September 30, 2015, the Company awarded certain consultants of the Company options to purchase 50,000 shares of Vermillion common stock with an exercise price of $2.05 per share. These stock options vest in 24 equal monthly instalments from the date the consultant first provided services to the Company.

The allocation of employee stock-based compensation expense by functional area for the three and nine months ended September 30,March 31,  2016 and 2015 and 2014 was as follows:





5.   LOSS PER SHARE

The Company calculates basic loss per share using the weighted average number of common shares 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 common stock outstanding and excludes the effects of 7,972,9858,709,504 and 2,563,1067,040,587 potential shares of common stock as of September 30,March 31,  2016 and 2015, and 2014, respectively, that are anti-dilutive. Potential shares of common stock include incremental shares of common stock issuable upon the exercise of outstanding warrants, stock options and unvested restricted stock options.units.

6.   Related Party Transaction

On January 18, 2016, the Company entered into a consulting agreement with David Schreiber, a member of Vermillion’s Board of Directors. Pursuant to the terms of the consulting agreement, Mr. Schreiber provided consulting services regarding business strategies and operational plans and was paid $375 per hour, with a minimum payment of $51,750 for the period up to the expiration of the agreement on March 31, 2016. As of March 31, 2016, the Company had paid Mr. Schreiber $13,000, and an additional $39,000 was payable to him under such agreement.



Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward LookingForward-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 (“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:  

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, 2015 (our “2015 Annual Report”) and 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 increase the volume of OVA1 sales; our ability to market our test through sales channels other than Quest Diagnostics Incorporated (“Quest Diagnostics”) including ASPiRA LABS; failures by third-party payers to reimburse OVA1 or changes or variances in reimbursement rates; our ability to secure additional capital on acceptable terms to execute our business plan; our ability to commercialize Overa both within and outside the United States; in the event that we

succeed in commercializing Overa outside the United States, the political, economic and other conditions affecting other countries (including foreign exchange rates); 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 United States 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; future litigation against us, including infringement of intellectual property and product liability

exposure; our ability to retain key employees; business interruptions; legislative actions resulting in higher compliance costs; changes in healthcare policy; our ability to comply with environmental laws; our ability to generate sufficient demand for ASPiRA LABS’ services to cover its operating costs; our ability to comply with the additional laws and regulations that apply to us in connection with the operation of ASPiRA LABS; and 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 laboratory-developed tests (“LDTs”).; ASPiRA IVD’s lack of operating history; ASPiRA IVD’s ability to generate and maintain business; fluctuations over time with respect to ASPiRA IVD’s operating results; ASPiRA IVD’s ability to enter into profitable contracts; ASPiRA IVD’s ability to maintain effective information systems without significant interruption; and ASPiRA IVD’s ability to perform its services in compliance with contractual requirements, regulatory standards and ethical considerations.   



Overview

Our Company

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, with our primary focus being diseases of the female pelvic mass disease.cavity.

We have expanded our corporate strategy with the goal of transforming Vermillion from a technology license company to a diagnostic service and bio-analytic solutions provider. Our plan is to broaden our commercial focus from ovarian cancer to differential diagnosis of women with a range of gynecological disorders. Our strategy will beis being deployed in three phases. The three phases are a rebuild phase, which was completed in thethirdquarter of 2015, a transformation phase, which is ongoing, and is expected to span the remainder of 2015, and a market expansion and growth phase, which we expect to begin in 2016.  

During the first phase, we expanded our leadership team by hiring several new heads of sales and customer experience, managed markets, marketing and operations, a chief information officer, a chief medical officer andsenior leaders including a chief executive officer.  In addition, we expanded our commercial strategy, reestablishedre-established medical and advisory support, rebuilt our patient advocacy strategy and established a billing system and a payer strategy outside of our relationship with Quest Diagnostics.  During the second phase, we completed the process of obtaining licensure of ASPiRA LABS in all of the states that require licenses and plan to establish our own payer coverage for OVA1 and launch a second-generation OVA1 test, trademarked Overa (predicated on receipt of clearance from the FDA).Overa.  In the third phase we plan to commercialize Overa by utilizing the full national licensure of ASPiRA LABS, managed care coverage in select markets, our sales force and existing customer base.  Unlike OVA1, Overa uses a global testing platform, which will allow Overa to be deployed internationally.  On October 26, 2015, we announced registration of the CE mark for and clearance to market Overa in the European Union.  We also plan to develop an LDT product series, which we refer to internally as OvaX.  We anticipate that OvaX will include not only biomarkers, and other diagnostics, but also clinical risk factors, other diagnostics and patient history data in order to boost predictive value.  On February 11, 2016, we adopted a plan to streamline our organization.  We have reduced headcount and other expenses targeting an approximately 20% reduction in go-forward operating expenses in 2016, as compared to operating expenses in 2015.

We are dedicated to the discovery, development and commercialization of novel high-value diagnostic and bio-analytical solutions that help physicians diagnose, treat and improve outcomes for women. Our tests are intended to detect, characterize and stage disease, and to help guide decisions regarding patient treatment, which may include decisions to refer patients to specialists, to perform additional testing, or to assist in monitoring response to therapy. A distinctive feature of our approach is to combine multiple biomarkers, other modalities and diagnostics, clinical risk factors and patient data into a single, reportable index score that has higher diagnostic accuracy than its constituents. We concentrate on our development of novel diagnostic tests for gynecologic disease, with an initial focus on ovarian cancer. We also intend to address clinical questions related to early disease

detection, treatment response, monitoring of disease progression, prognosis and others through collaborations with leading academic and clinical research institutions.

Our leadinitial 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. We have completed development and validation work on a second-generation biomarker panel known as Overa, which is intended to maintain our product’s high sensitivity while improving specificity. We submitted our 510(k) clearance application for Overa to the FDA onin March 6, 2015, with the goal of commencing the marketing and sale of the panel on a targeted basis in the fourth quarter of 2015.2016. We received a requestFDA clearance for additional information about this 

submission from the FDA, to which we responded by submitting a formal response to the FDA. On September 8, 2015, the FDA sent a second request for additional information.  As of the date of the filing of this Quarterly ReportOvera on Form 10-Q, we are in the process of preparing our response to the FDA’s second request. While our goal remains to commence the marketing and sale of  Overa in the fourth quarter of 2015, this timing may extend into the first quarter ofMarch 18, 2016. Overa uses the Roche Cobascobas 6000 platform.platform.  

In June 2014, Vermillion launched ASPiRA LABS, a Clinical Laboratory Improvements Amendments of 1988 (“CLIA”) certified national laboratory based nearin Austin, Texas, which specializes in applying biomarker-based technologies to address critical needs in the management of gynecologic cancers and specifically pelvic mass disease. ASPiRA LABS provides expert diagnostic services using a state-of-the-art biomarker-based diagnostic algorithm to informaid in clinical decision making and advance personalized treatment plans. The lab currently processes our OVA1 test, and we expect the lab to process the CA 125-II test (which is marketed and sold by a third party) in the future in specific markets.markets although we are prohibited from offering CA 125-II tests to existing or future Quest Diagnostics customers (see Note 2 to our first quarter 2016 unaudited financial statements above). We plan to expand the testing provided by ASPiRA LABS 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 & Medicaid Services (“CMS”) issued a provider number to ASPiRA LABS in March 2015.

In 2016, we began creating a new service within the ASPiRA channel strategy, “an ASPiRA IVD Services Program”. In April 2016, we formed ASPiRA IVD with plans to offer IVD trial services to third-party customers. We plan for ASPiRA IVD to be a specialized laboratory provider dedicated to meeting the unique testing needs of IVD manufacturers seeking to commercialize high-complexity assays. Our goal is to build ASPiRA IVD around a core of laboratory expertise and a FDA-compliant quality system, with an emphasis on March 5, 2015.delivering accurate and reliable results to its third-party customers suitable for FDA submission. ASPiRA IVD has applied for a CLIA laboratory license and intends to commence operations in the third quarter of 2016.

In this program, we also plan to leverage our existing infrastructure and enhance our pipeline of future technologies by fostering relationships with IVD companies who are developing new diagnostics including companion diagnostics platforms. We believe this plan will allow us to continue to be innovative in evaluating potential diagnostics. Our goal with the addition of this line of business is to invest in our short-term and long-term enterprise value while leveraging our specimen bank, database, FDA experience, laboratory informatics and operating efficiency.

Strategy:

We are focused on the execution of fourfive core strategic business drivers in ovarian cancer diagnostics and specialized laboratory services to build long-term value for our investors:

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.

Our Product

OVA1addresses a clear clinical need, namely the pre-surgical identification of women who are at high risk of having a malignant ovarian tumor. Numerous studies have documented the benefit of referral of these women to gynecologic oncologists for their initial surgery. Prior to the clearance of OVA1, no blood test had been cleared by the FDA for physicians to use in the pre-surgical management of ovarian adnexal masses. OVA1 is a qualitative serum test that utilizes five well-established biomarkers and proprietary software cleared as part of the OVA1 510(k) to determine the likelihood of malignancy in women over age 18, with a pelvic mass for whom surgery is planned. OVA1 should not be used without an independent clinical/radiological evaluation and is not intended to be a screening test or to determine whether a patient should proceed to surgery.  Incorrect use of OVA1 carries the risk of unnecessary testing, surgery and/orand delayed diagnosis.  OVA1 was developed through large pre-clinical studies in collaboration with numerous academic medical centers encompassing over 2,500 clinical samples. OVA1 was fully validated in a prospective multi-center clinical trial encompassing 27 sites reflective of the diverse nature of the clinical centers at which ovarian adnexal masses are evaluated.

We terminated our Strategic Alliance Agreement with Quest Diagnostics (the “Strategic Alliance Agreement”) in August 2013. Prior to the termination of the Strategic Alliance Agreement, Quest Diagnostics had the right to be the exclusive clinical reference laboratory marketplace provider of OVA1 tests in its exclusive territory, which included the United States, Mexico, the United Kingdom and India. As part of the termination, we

agreed that Quest Diagnostics could continue to make OVA1 available to healthcare providers under legacy financial terms following the termination while negotiating in good faith towards an alternative business structure. Quest Diagnostics disputed the effectiveness of such termination.

On March 11, 2015, we reached a settlement agreement with Quest Diagnostics that terminated all disputes related to the Strategic Alliance Agreement and our prior loan agreement with Quest Diagnostics. We also entered into a new commercial agreement with 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 10, 2015, with the exception of a nominal number of OVA1 tests distributed through Quest Diagnostics after that date. We do not expect Quest Diagnostics to distribute additional tests in the future. 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, 2017 in exchange for a market value fee. Per the terms of the new commercial agreement, we will not offer to existing or future Quest Diagnostics customers CA 125-II or other tests that Quest Diagnostics offers.

In March 2015, we announced initial results from a cost-effectiveness analysis study which was presented in a poster at the Annual Meeting of the American College of Medical Quality in Alexandria, Virginia. The study was co-authored by Dr. Robert E. Bristow and Dr. Gareth K. Forde, clinicians at the University of California at Irvine, and Dr. John Hornberger, a leading health economist at Stanford University School of Medicine. The new study, entitled: “Cost Effectiveness Analysis of a Multivariate Index Assay compared to Modified ACOG Criteria and CA-125 in the Triage of Women with Adnexal Masses”, compared the cost-effectiveness of triaging ovarian masses using OVA1 versus two important clinical benchmarks: the CA-125 biomarker and the modified ACOG (American College of Obstetricians and Gynecologists) guideline for ovarian cancer risk assessment (“mod-ACOG”).

Study endpoints included treatment costs, quality-adjusted life-years (“QALYs”) and incremental cost-effectiveness ratio (“ICER”). The health economic model utilized OVA1 performance data from the OVA500 prospective trial, published survival, cost and QALY parameters, and a best-practice patient management decision tree. Several important health economic and quality outcomes conclusions were reported in the study:

In April 2015, we announced the initiation of a strategiccollaborationwith Kaiser Permanente's Southern California Permanente Medical Group in order to enhance the diagnosis and treatment of ovarian cancer. The ultimate goal of this collaboration is to create a "best practice" for identification and "first time right" treatment of patients with ovarian cancer.The first phase of this relationship is focused on retrospective benchmarking of ovarian cancer care across the Kaiser-Permanente system in Southern California. The study will be directed from within the Women and Children’s Service Line of Kaiser Permanente, Orange County. Subsequent phases are expected to include the opportunity to collaborate further in identifying a role for innovative diagnostics, such as OVA1 and Overa, in informing ovarian cancer treatment decisions to better serve patients and optimize the effectiveness of healthcare delivery.

In May 2015, we announced publication of two abstracts reporting initial positive top-line results regarding the development and validation of Overa, Vermillion’s second-generation OVA1 ovarian cancer triage test. The results were presented in two posters at the 2015 American Society for Clinical Oncology annual meeting.

The abstracts represent the first publication of data from the development of Overa. The data show significant improvement in Overa specificity compared to OVA1, while maintaining strong sensitivity (92% for OVA1 in a 2013 study). Our goal is to launch Overa by the fourth quarter of 2015, dependent on successful and timely FDA clearance.

Highlights of the abstracts are as follows:

†Risk stratification performance, for analytical purposes only; OVA1/Overa are not standalone diagnostic tests

*Statistically significant difference (p<0.001); n.s. Difference not statistically significant (p≥0.05)

In May 2015 we announced that the Company was approved for a product development grant from the Cancer Prevention and Research Institute of Texas (“CPRIT”)CPRIT for $7,500,000, to help fund the Company's new multi-site pelvic mass registry. The grant would assist the Company in creating a first-in-kind clinical registry of patients undergoing evaluation, diagnosis, treatment and follow-up for pelvic masses that may lead to gynecologic malignancy. Receipt of the grant award is subject to execution of a grant contract on terms acceptable to both Vermillion and CPRIT which may include such terms as payment of future product royalties to CPRIT by Vermillion. Negotiations with CPRIT are ongoing.

On April 20, 2016, we announced the publication of the first clinical utility data demonstrating that identification of high-risk patients using OVA1 prior to surgery resulted in referral of nearly all patients who had primary ovarian malignancies to gynecologic oncologists. The study, titled “The clinical utility of an elevated-risk multivariate index assay score in ovarian cancer patients,” to be published in the peer-reviewed journal Current Medical Research & Opinion, is now available online as a pre-print (10.1080/03007995.2016.1176014).

The study surveyed physicians who frequently used OVA1, and identified 122 patients who underwent surgery for a pelvic mass after a high-risk OVA1 score was reported. Of these, 65 had a primary ovarian malignancy, while the remainder were benign or had a metastatic cancer of non-ovarian origin. Pre-surgical involvement of a gynecologic oncologist was documented, including referral, consultation or availability on stand-by; and the specialty of the surgeon who performed the adnexal surgery was also recorded. Of the 4 patients whose surgery was not performed by a gynecologic oncologist, 2 required re-operation for complete staging by a gynecologic oncologist. In comparison, none of the 61 ovarian cancers that were operated on by a gynecologic oncologist required restaging. According to the National Academy of Medicine’s 2016 report titled,  “,” re-operations are common after non-specialists operate on ovarian cancer, and may result in delayed treatment, higher costs and inferior outcomes compared with ‘first time right’ surgery by a gynecologic oncologist.

On May 13, 2016, we entered into our first international distribution agreement for Overa. Bio-Medical Science Co., Ltd. will market and distribute Overa on an exclusive basis in South Korea.

Critical Accounting Policies and Estimates

Revenue Recognition

We have adopted ASC 954-605,Health Care Entities—Revenue Recognition as revenue from laboratory services has become more significant to us.Our revenue is generated by performing diagnostic services using our OVA1 test, and the service is completed upon the delivery of test results to the prescribing physician. We recognize

revenue related to billings for Medicare and commercial payers on an accrual basis, net of contractual and other adjustments, when amounts that will ultimately be realized can be estimated. Until a contract has been negotiated with a commercial payer or governmental program, the OVA1 test may or may not be covered by these entities' existing reimbursement policies. In addition, patients do not enter into direct agreements with us that commit them to pay any portion of the cost of the tests in the event that their insurance declines to reimburse us. In the absence of an agreement with the patient or other clearly enforceable legal right to demand payment from the patient, the related revenue is only recognized upon cash receipt.

Estimates of amounts that we will ultimately realize require significant judgment by management. Some patients have out-of-pocket costs for amounts not covered by their insurance carrier, and we may bill the patient directly for these amounts in the form of co-payments and co-insurance in accordance with the patient’s health plan. Some payers may not cover the OVA1 test as ordered by the prescribing physician under their reimbursement policies. We pursue reimbursement from such patients on a case-by-case basis. In the absence of contracted reimbursement coverage or the ability to estimate the amount that will ultimately be realized for our services, revenue is recognized when cash is received.

There have been no other material changes to our critical accounting policies and estimates as disclosed in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.2015.

In July 2015, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2015-11 Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU No. 2015-11”). ASU 2015-11 changes the measurement of inventory from the lower of cost or market to the lower of cost and net realizable value. The amendments are effective prospectively for the fiscal years, and interim reporting periods within those years, beginning on or after December15, 2016. We do not anticipate a material impact on our consolidated financial statements from the adoption of this ASU.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU 2014-09 removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets, provides more useful information to users of financial statements through improved disclosure requirements and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. This guidance requires that an entity depict the consideration by applying a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. On April 1, 2015, the FASB voted for a one-year deferral of the effective date of the new revenue recognition standard, ASU No. 2014-09.On July 15, 2015, the FASB affirmed these changes, which requires public entities to apply the amendments in ASU 2014-09 for annual reporting beginning after December 15, 2017. Early adoption is permitted

beginning after December 31, 2016, the original effective date in ASU 2014-09. We are currently evaluating the impact of this ASU on our consolidated financial statements and related disclosures.

Results of Operations - Three Months Ended September 30, 2015March 31,  2016 Compared to Three Months Ended September 30, 2014March 31,  2015

The selected summary financial and operating data of the Company for the three months ended MarchSeptember  30 31,  20152016 and 20142015 were as follows:



Product Revenue.  Product revenue was $330,000$505,000 for the three months ended September 30, 2015March 31,  2016 compared to $209,000$635,000 for the same period in 2014. As a result2015.  However, product revenue for the three months ended March 31, 2015 included the one-time recognition of $163,000 in deferred product revenue upon the signing of our March 11, 2015new agreement with Quest Diagnostics we realize product revenue for tests performed by Quest Diagnostics after January 1, 2015 at the time the OVA1 test is performed. During the three months ended September 30, 2014, we recognized product revenue for the sale of OVA1 through Quest Diagnostics at only a $50 fixed fee per test. on March 11, 2015.

The number of OVA1 tests performed decreased 26%40% to approximately 3,1832,265 OVA1 tests during the three months ended September 30, 2015March 31, 2016 compared to approximately 4,3253,783 OVA1 tests for the same period in 2014. This2015.  The volume included 1,665 OVA1 tests performed by ASPiRA LABS during the three months ended September 30, 2015. Product revenueMarch  31, 2015 included 3,567 OVA1 tests performed by Quest Diagnostics.  All tests for the three months ended September 30, 2015 consisted of $190,000 from the testsMarch 31, 2016 were performed by Quest Diagnostics and $140,000 of revenue recognized by ASPiRA LABS. The decrease is attributed to volume loss incurred in the transition of testing from Quest Diagnostics to ASPiRA LABS in August 2015.  

We expect product revenue to decreaseincrease modestly in the fourthsecond quarter of 20152016 due to the transition of volume from Quest Diagnostics toimproved cash collections at ASPiRA LABS. Revenue for ASPiRA LABSLABS’ contractual clients is being recognized when the OVA1 test is being performed. All other ASPiRA LABS revenue is being recognized on the cash basis and thus recognition of revenue lags behind the performance of an OVA1 test. 

License Revenue.  There was no license revenue recognized for the three months ended September 30, 2015March 31,  2016 compared to $114,000$316,000 for the same period in 2014.2015.  We do not expect to recognize any license revenue in future quarters.

Cost of Revenue.  Cost of product revenue was $757,000$528,000 for the three months ended September 30, 2015March 31,  2016 compared to $606,000$491,000 for the same period in 2014.2015. The $151,000,$37,000, or 25%8%, increase is related to costs associated with processing the full volume of OVA1 tests at ASPiRA LABS after the cutover of volume from Quest Diagnostics to ASPiRA LABS on August 10, 2015. We expect the cost of revenue to increaseremain consistent in future periods due to ongoing coststhe second quarter of operating ASPiRA LABS and performing higher volumes of OVA1 testing.2016. 

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 also include costs related to activities performed under

contracts with our collaborators and strategic partners. Research and development expenses for the three months ended September 30, 2015March 31,  2016 decreased $389,000,$171,000, or 31%15%, compared to the same period in 2014.2015.  This decrease was primarily due to a decreaseone-time product development consulting project in costs associated with our collaboration with Johns Hopkins University School of Medicine and other Overa-related development costs2015 not being repeated in 2015. These decreases were partially offset by increased research and development headcount in 2015 compared to 2014.2016. We expect research and development expense to increaseremain consistent in future periods as we continue to invest inthe second quarter of 2016 and until launch of our product pipeline, including initiation of a new clinical registry study.

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, laboratory personnel and other healthcare professionals regarding OVA1. 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 decreased $300,000,increased $63,000, or 11%3%, for the three months ended September 30, 2015March 31,  2016 compared to the same period in 2014.2015.  The decreaseincrease was primarily due to severance costs associated with severanceincurred in our February 2016 restructuring. We expect sales and costs relatedmarketing expenses to branding ASPiRA LABS not being repeateddecrease in 2015. future quarters as a result of the restructuring effort.

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 increased by $99,000,$259,000, or 8%19%, for the three months ended September 30, 2015March 31,  2016 compared to the same period in 2014.2015.  The increase was primarily due to a  $140,000 investment in our new IVD trial services laboratory and increased headcountconsulting fees in 20152016 compared to the same period in 2014.2015.



Results of Operations - Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014

The selected summary financial and operating data of the Company for the nine months ended September 30, 2015 and 2014 were as follows:

Product Revenue.  Product revenue was $1,500,000 for the nine months ended September 30, 2015 compared to $611,000 for the same period in 2014.  As a result of our March 11, 2015 agreement with Quest Diagnostics, we realize product revenue for tests performed by Quest Diagnostics after January 1, 2015 at the time the OVA1 test is performed. Upon signing the agreement with Quest Diagnostics on March 11, 2015, we recognized $163,000 in deferred product revenue related to January and February 2015 which is included in product revenue for the nine months ended September 30, 2015.  During the nine months ended September 30, 2014, we recognized product revenue for the sale of OVA1 through Quest Diagnostics at only a $50 fixed fee per test. The total number of OVA1 tests performed during the nine months ended September 30, 2015 decreased 10%, to 11,069 compared to 12,365 OVA1 tests for the same period in 2014. Tests performed by Quest Diagnostics during the nine months ended September 30, 2015 were 8,914 compared to 12,210 for the same period in 2014. In addition, ASPiRA LABS performed 2,155 OVA1 tests during the nine months ended September 30, 2015 compared to 155 in the comparable prior year period. We expect product revenue to decrease in the fourth quarter of 2015 due to the cutover of testing volume from Quest Diagnostics to ASPiRA LABS as of August 10, 2015. ASPiRA LABS recognizes revenue from contractual clients when the OVA1 test is performed. All other ASPiRA LABS revenue is recognized on the cash basis and thus recognition of revenue lags the performance of an OVA1 test.      

License Revenue.  License revenue was $316,000 for the nine months ended September 30, 2015 compared to $341,000 for the same period in 2014. We do not expect to recognize any license revenue in future quarters.

Cost of Revenue.  Cost of product revenue increased $1,073,000 or 143%  for the nine months ended September 30, 2015 compared to the same period in 2014.  The increase is related to the ongoing costs of operating ASPiRA LABS. ASPiRA LABS opened on June 23, 2014, so only one quarter of cost was included in the comparable prior year period. We expect the cost of revenue to increase in future periods due to ongoing costs of operating ASPiRA LABS and performing higher volumes of OVA1 testing.

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 also include costs related to activities performed under contracts with our collaborators and strategic partners. Research and development expenses for the nine months ended September 30, 2015 decreased $575,000, or 17%, compared to the same period in 2014.  This was primarily due to a decrease in costs associated with our collaboration with Johns Hopkins University School of Medicine since we completed the development of Overa in 2014. 

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, laboratory personnel and other healthcare professionals regarding OVA1. 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 decreased $394,000 or 5% for the nine months ended September 30, 2015 compared to the same period in 2014 due to slightly lower headcount in 2015.  

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 were consistent for the nine months ended September 30, 2015 compared to the same period in 2014.  One-time pre-opening costs for ASPiRA LABS in 2014 were not repeated in 2015 but were almost entirely offset by increased personnel costs, legal expenses and administrative costs associated with billing for tests performed by ASPiRA LABS.

Other Income (Expense), Net.  Other incomeexpense was $95,000$4,000 for the ninethree months ended September 30, 2015March 31, 2016 compared to other expenseincome of $25,000$116,000 in the same period in 2014.2015. Other income for the nine three months ended September  30,March 31, 2015 related to recognition of one-time items related to the March 11, 2015 agreement with Quest Diagnostics. 



Liquidity and Capital Resources

We plan to continue to expend resources in the selling and marketing of OVA1 and Overa and developing additional diagnostic tests.tests and service capabilities.  

We have incurred significant net losses and negative cash flows from operations since inception. At September 30, 2015,March 31,  2016, we had an accumulated deficit of $365,605,000$375,485,000 and stockholders’ equity of $22,116,000.$12,877,000. As of September 30, 2015,March  31,  2016, we had $23,974,000$13,067,000 of cash and cash equivalents and $3,202,000$2,940,000 of current liabilities. Working capital was $10,991,000 and $16,015,000 at March  31, 2016 and December 31, 2015 respectively.

On July 17, 2015March 22, 2016, we completed the sale of 9,602,500 shares of Vermillion common stock, at a price to the public of $1.96 per share, including 1,252,500 shares soldentered into an agreement pursuant to the full exercise of the underwriters' optionwhich we may borrow up to purchase additional shares, in an underwritten public offering at a price of $1.96 per share.  Net proceeds$4,000,000 from the offering were approximately $17,496,000 after deducting underwriting discountsDECD. We received an initial disbursement of $2,000,000 on April 15, 2016 under this agreement.  The remaining $2,000,000 will be disbursed if and offering expenses. when we achieve certain future milestones.

We expect to incur a net loss and negative cash flows from operations in 2016 and the foreseeable future. Our management believes that the Company’s working capital position assuccessful achievement of the date of the filing of this Quarterly Report on Form 10-Qour business objectives will be sufficient to meet the Company’s working capital needs for at least the next 12 months. However, we expect cash for OVA1 tests to be our only material, recurring source of cash for the remainder of 2015. There can be no assurance that we will achieve or sustain profitability or positive cash flow from operations. In addition,require additional financing. Given these conditions, there is no assurance ofsubstantial doubt about our ability to generate substantial revenuescontinue as a going concern. The condensed consolidated financial statements have been prepared on a going concern basis and cash flowsdo not include any adjustments that might result from ASPiRA LABS’ operations.these uncertainties.

InWe expect to raise capital through a variety of sources, which may include the event we seek additional capital in the future,public equity market, private equity financing, may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants and dilution to stockholders. If we obtaincollaborative arrangements, licensing arrangements, and/or public or private debt. However, additional funds through arrangements with collaborators or strategic partners, we may be required to relinquish our rights to certain technologies or products that we might otherwise seek to retain. Additional funding may not be available when needed or aton terms acceptable to us.

CashIf we are unable to obtain additional capital, we may not be able to continue sales and cash equivalents asmarketing, research and development, or other operations on the scope or scale of September 30, 2015current activity and December 31, 2014, were $23,974,000that could have a material adverse effect on our business, results of operations and $22,965,000 respectively. Working capital was $21,332,000 and $18,739,000 at September 30, 2015 and December 31, 2014 respectively.financial condition. 

Net cash used in operating activities was $13,780,000$4,995,000 for the ninethree months ended September 30,March 31, 2016 resulting primarily from the net loss reported of $4,897,000 and changes in accounts payable, accrued and other liabilities of

$413,000 partially offset by stock compensation expense of $223,000 and depreciation and amortization of $147,000.

Net cash used in operating activities was $4,525,000 for the three months ended March 31, 2015 resulting primarily from the net loss reported of $14,132,000$4,137,000 and non-cash license revenue of $316,000 partially offset by stock compensation expense of $908,000.

Net cash used in operating activities was $12,598,000 for the nine months ended September 30, 2014 resulting primarily from the net loss reported of $15,133,000 partially offset by changes in operating assets and liabilities of $1,929,000.$316,000.    

Net cash used in investing activities was $222,000$578,000 and $232,000$37,000 for the ninethree months ended September 30,March 31, 2016 and 2015, and 2014, respectively. This decreaseincrease resulted primarily from decreased purchases of property and equipment.

Net cash provided byused in financing activities was $15,011,000of $2,000 for the ninethree months ended September 30, 2015 compared to $88,000 the same period in 2014. The increase in cash provided by financing activitiesMarch 31, 2016 resulted primarily from net proceeds from the salerepayments of common stock of $17,496,000 in July 2015,capital lease obligations which were partially offset by proceeds received from the repurchaseexercise of common stock from Quest Diagnostics,options.  Net cash used in financing activities for the amount of $1,291,000,three months ended March 31, 2015 resulted from the repayment of short-term debt of $1,069,000 to Quest Diagnostics and $122,000 of offering expenses relating to our December 2014 private placement. Net cash provided by financing activities for the nine months ended September 30, 2014 consistedincurred of proceeds from stock option exercises.$93,000.     

Our future liquidity and capital requirements will depend upon many factors, including, among others:   

We have significant net operating loss (“NOL”) carryforwards as of September  30, 2015March 31, 2016 for which a full valuation allowance has been provided due to our history of operating losses. Our ability to use our net NOL credit 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, as well as similar state provisions. 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.

Off-Balance Sheet Arrangements

As of September  30, 2015,March  31,  2016, 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.

Per Item 305(e) of Regulation S-K, information is not required.

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 Accounting

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 September 30, 2015.March 31,  2016.  Based on this evaluation, our Chief Executive Officer and Chief Accounting Officer have concluded that as of September 30, 2015,March  31,  2016, 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.



PART II - OTHER INFORMATION



In the ordinary course of business, we may periodically become subject to legal proceedings and claims arising in connection with ongoing business activities. The results of litigation and claims cannot be predicted with certainty, and unfavorable resolutions are possible and could materially and adversely affect our results of operations, cash flows and financial position. In addition, regardless of the outcome, litigation could have an adverse impact on us because of defense costs, diversion of management resources and other factors. While the outcome of these proceedings and claims cannot be predicted with certainty, there are no matters, as of September 30, 2015,March 31,  2016, that, in the opinion of management, will have a material adverse effect on our financial position, results of operations or cash flows.

ITEM 1A. RISK FACTORS



Investing inThere have been no material changes to our securities involves a high degree of risk. You should carefully consider the following risk factors and uncertainties together with allfrom those disclosed under “Risk Factors” in Part I, Item 1A of the other information contained in this Quarterly Report on Form 10-Q and our 2015 Annual Report on Form 10-K, including our audited consolidated financial statements and the accompanying notes. If any of the following risks materializes, our business, financial condition and results of operations could be materially adversely affected, and the value of an investment in our common stock may decline significantly.except as set forth below.  The risks and uncertainties described below and in our 2015 Annual Report are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially adversely affect our business, financial condition andor results of operations.

Risks Related to Our Business

If we are unable to increase the volume of OVA1 sales, our business, results of operations and financial condition will be adversely affected.

We have experienced significant operating losses each year since our inception and we expect to incur a net loss for fiscal year 2015 and the foreseeable future. Our losses have resulted principally from costs incurred in research and development, sales and marketing, and general and administrative costs. 

Historically, all of our revenues were generated from sales of OVA1 tests performed by Quest Diagnostics. Pursuant to our March 2015 agreement with Quest Diagnostics, OVA1 testing in the United States for Quest Diagnostics customers was transitioned from Quest Diagnostics to ASPiRA LABS as of August 10, 2015, with the exception of a nominal number of OVA1 tests distributed through Quest Diagnostics after that date. We do not expect that Quest Diagnostics will distribute additional tests in the future.  If we are unable to increase the volume of OVA1 sales, our consolidated results of operations and financial condition would be adversely affected.

Virtually all of our revenue was derived from Quest Diagnostics during 2014, and there is no guarantee that we will be able to successfully market our test through additional channels, including ASPiRA LABS, in the future.

Virtually all of our revenue during 2014 was derived through our strategic partnership with Quest Diagnostics and was based on the number of OVA1 tests performed by Quest Diagnostics and the reimbursement rate received by Quest Diagnostics for those tests. Additional Risk FactorsOn March 11, 2015, we entered into a new agreement with Quest Diagnostics pursuant to which, Quest Diagnostics transitioned OVA1 testing services for its customers to ASPiRA LABS as of August 10, 2015, with the exception of a nominal number of OVA1 tests distributed through Quest Diagnostics after that date.  We still depend on Quest Diagnostics for blood draw and logistics for a significant portion of our specimens.There is no guarantee that Quest Diagnostics will perform as expected, or provide a sufficient volume of OVA1 test samples to support our business. Due in part to this uncertainty, we plan to offer OVA1 through additional channels in the future. However, if we are not successful in adding additional sales

channels or if we do not experience growing OVA1 test volumes or receive less reimbursement per test than expected, it could have a material adverse effect on our business, results of operations and financial condition.

Failures by third-party payers to reimburse OVA1 or changes or variances in reimbursement rates could materially and adversely affect our business, financial condition and results of operations.

Virtually all of our product revenue in 2014 was dependent on the amount Quest Diagnostics received from third-party payers for performing OVA1 tests, and our future revenues will also be dependent upon third-party reimbursement, which is now paid directly to ASPiRA LABS. Insurance coverage and reimbursement rates for diagnostic tests are uncertain, subject to change and particularly volatile during the early stages of commercialization. There remain questions as to what extent third-party payers, like Medicare, Medicaid and private insurance companies will provide coverage for OVA1 and for which indications. CMS is in the process of developing payment codes and reimbursement rates under Medicare for certain next-generation sequencing tests which may include certain Multianalyte Assays with Algorithmic Analyses, such as our OVA1 test. These new payment codes and rates are expected by January 1, 2016, but there is no guarantee that CMS will issue them at that time, that the codes will cover the OVA1 test or that the payment rate will be comparable to current Medicare reimbursement levels for the test. Such uncertainty could create payment uncertainty from other payers as well. The reimbursement rates for OVA1 are largely out of our control. We have had limited visibility into any specific payer-level reimbursement data for OVA1 because such data was historically provided to us by Quest Diagnostics once a year as part of the annual revenue true-up process. Quest Diagnostics has advised us that it has experienced volatility in the coverage and reimbursement of OVA1 due to contract negotiation with third-party payers and implementation requirements and that the reimbursement amounts it has received from third-party payers varies from payer to payer, and, in some cases, the variation is material. In addition, there is no guarantee that our third-party payer experience will be similar to that of Quest Diagnostics.   

Third-party payers, including private insurance companies as well as government payers such as Medicare and Medicaid, have increased their efforts to control the cost, utilization and delivery of healthcare services. These measures have resulted in reduced payment rates and decreased utilization of diagnostic tests such as OVA1. From time to time, Congress has considered and implemented changes to the Medicare fee schedules in conjunction with budgetary legislation, and pricing for tests covered by Medicare is subject to change at any time. Reductions in third-party payer reimbursement rates may occur in the future. Reductions in the price at which OVA1 is reimbursed could have a material adverse effect on our business, results of operations and financial condition. If we are unable to establish and maintain broad coverage and reimbursement for OVA1 or if third-party payers change their coverage or reimbursement policies with respect to OVA1, our business, financial condition and results of operations could be materially adversely affected.

We may need to raise additional capital in the future and if we are unable to secure adequate funds on terms acceptable to us, we may be unable to execute our business plan.



We are adding the following to the “Risks Related to Our Business” contained in our 2015 Annual Report:

Risks Related to our planned ASPiRA IVD Business

ASPiRA IVD is a new business venture with no operating history and may seeksubject us to raise additional capitalrisks.

To date, we have no operating results with respect to providing IVD trial services to third parties through the issuanceASPiRA IVD, and, therefore, we do not have an operating history upon which you can evaluate this new line of equitybusiness or debt securities in the public or private markets, or through a collaborative arrangement or sale of assets. Additional financing opportunitiesits prospects.  Cash in-flows from our new IVD trial services business may not meet expectations, and ASPiRA IVD’s prospects must be available to us, or if available, may not be on favorable terms. The availability of financing opportunities will depend,considered in part, on market conditions, and the outlook for our business. Any future issuance of equity securities or securities convertible into equity could result in substantial dilution to our stockholders, and the securities issued in such a financing may have rights, preferences or privileges senior to those of our common stock. If we are unable to obtain additional capital, we may not be able to continue our sales and marketing, research and development or other operations on the scope or scale of our current activity.

Our success depends, in part, on our ability to commercialize OVA1 outside the United States, and there is no assurance that we will be able to do so successfully.

In 2014, all of our product revenue was generated in the United States. In 2015, we plan to begin to actively seek laboratory customers and other distributors and partners outside the United States, so that we may begin directly or indirectly marketing and selling Overa outside the United States in 2016. We may not be able to find suitable customers or other distributors or partners outside the United States that are willing to enter into business relationships with us on terms that are advantageous to us or at all. Moreover, while we registered the CE mark and in October 2015 obtained clearance to market Overa in the European Union, we may be prohibited in the future from directly or indirectly marketing or selling Overa in the European Union or various other jurisdictions outside the United States if we are unable to maintain or obtain applicable regulatory approvals. In addition, we will need to ensure that third-party payers, including insurance companies and government payers, in jurisdictions outside the United States will pay or reimburse for Overa tests performed in those jurisdictions.

If we are able to establish operations in countries outsidelight of the United States, wemay be subject to political, economicrisks and other conditions affecting these countries that could result in increased operating expenses and regulation.

If we are able to execute on our plan to establish a market for Overa outside the United States, there are risksuncertainties inherent in conductingentering into a new line of business, internationally, including the following:including:

If we are able to establish operations in countries outside of the United States, changes in foreign exchange rates may adversely affect our revenue and net income.

If we are ableFailure to successfully commercialize Overa outside the United States, we expect that revenue and expense from our foreign operations will typically be denominated in local currencies, thereby creating exposure to changes in exchange rates. Revenue and profit generated by any international operations will increase or decrease as a result of changes in foreign currency exchange rates. Adverse changes to foreign exchange rates could decrease the value of revenue we receive from our contemplated international operations and have a material adverse impact on our business, results of operations and financial condition.

If we fail to continue to develop our existing technologies, we may not be able to successfully foster adoption of our products and services.  

Our technologies are new and complex, and are subject to change as new discoveries are made. New discoveries and advancementsmanage these risks in the diagnostic field are essential if we are to foster the adoptiondevelopment and implementation of our product offerings. Development of our existing technologies remains a substantial risk to us due to various factors, including the scientific challenges involved, our ability to find and collaborate successfully with others working in the diagnostic field, and competing technologies, which may prove more successful than our technologies.

We may not succeed in developing additional diagnostic products, and, even if we do succeed in developing additional diagnostic products, the diagnostic products may never achieve significant commercial market acceptance.

Our success depends on our ability to continue to develop and commercialize diagnostic products. There is considerable risk in developing diagnostic products based on our biomarker discovery efforts, as candidate biomarkers may fail to validate results in larger clinical studies or may not achieve acceptable levels of clinical accuracy. For example, markers being evaluated for one or more next-generation ovarian cancer diagnostic tests may not be validated in downstream pre-clinical or clinical studies, once we undertake and perform such studies. In addition, development of products combining biomarkers with imaging, patient risk factors or other risk indicators carry higher than average risks due to technical, clinical and regulatory uncertainties. While we have published proof of concept on combining OVA1 and imaging, for example, our ability to develop, verify and validate an algorithm that generalizes to routine testing populations cannot be guaranteed. If successful, the regulatory pathway and clearance/approval process may require extensive discussion with applicable authorities and possibly, medical panels or other oversight mechanisms. These pose considerable risk in projecting launch dates, requirements for clinical evidence and eventual pricing and return on investment. Although we are engaging important stakeholders representing gynecologic oncology, benign gynecology, patient advocacy, women’s health research, reimbursement and others, success, timelines and value will be uncertain and require active management at all stages of innovation and development.

Clinical testing is expensive, takes many years to complete and can have an uncertain outcome. Clinical failure can occur at any stage of the testing. Clinical trials for our next generation ovarian cancer tests, and other future diagnostic tests, may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical and/or non-clinical testing on these tests. In addition, the results of our clinical trials may identify unexpected risks relative to safety or efficacy, whichASPiRA IVD’s new IVD trial services business could complicate, delay or halt clinical trials, or result in the denial of regulatory approval by the FDA and other regulatory authorities.

If we do succeed in developing additional diagnostic tests with acceptable performance characteristics, we may not succeed in achieving commercial market acceptance for those tests. Our ability to successfully commercialize diagnostic products, including OVA1, will depend on many factors, including:

These factors present obstacles to commercial acceptance of our existing and potential diagnostic products, for which we will have to spend substantial time and financial resources to overcome, and there is no guarantee that we will be successful in doing so. Our inability to do so successfully would prevent us from generating revenue from OVA1 and future diagnostic products.

The diagnostics market is competitive, and we may not be able to compete successfully, which would adversely impact our ability to generate revenue.

Our principal competition currently comes from the many clinical options available to medical personnel involved in clinical decision making. For example, rather than ordering an OVA1 test for a woman with an adnexal mass, obstetricians, gynecologists, and gynecologic oncologists may choose a different clinical option or none at all. If we are not able to convince clinicians that OVA1 provides significant improvement over current clinical practices, our ability to commercialize OVA1 will be adversely affected. Additionally, in September 2011, Fujirebio Diagnostics received FDA clearance for its ROMA test. ROMA combines two tumor markers and menopausal status into a numerical score using a publicly available algorithm. This test has the same intended use and precautions as OVA1, and our revenues could be materially and adversely affected if the ROMA test is successfully commercialized. In addition, competitors, such as Becton Dickinson, ArrayIt Corporation, and Abbott Laboratories have publicly disclosed that they have been or are currently working on ovarian cancer diagnostic assays. Academic

institutions periodically report new findings in ovarian cancer diagnostics that may have commercial value. Our failure to compete with any competitive diagnostic assay if and when commercialized could adversely affect our business, financial condition and results of operations.  

We have priced OVA1 at a point that recognizes the value-added by its increased sensitivity for ovarian malignancy. If others develop a test that is viewed to be similar to OVA1 in efficacy but is priced at a lower point, we and/or our strategic partners may have to lower the price of OVA1 in order to effectively compete, which would impact our margins and potential for profitability.

Our diagnostic tests are subject to ongoing regulation by the FDA; the commercialization of our diagnostic tests may be adversely affected by changing FDA regulations; and any delay by or failure of the FDA to approve our diagnostic tests submitted to the FDA may adversely affect our business, results of operations and financial condition.

The FDA cleared OVA1 in September 2009. In connection with the clearance of OVA1 we agreed to conduct certain post-market surveillance studies to further analyze performance of OVA1 in pre- and post-menopausal women. Failure to comply with our post-marketing study requirements may lead to enforcement actions by the FDA, including seizure of our product, injunction, prosecution and/or civil money penalties, which may harm our business, results of operations and financial condition.

Our activities related to diagnostic products are, or have the potential to be, subject to regulatory oversight by the FDA under provisions of the Federal Food, Drug and Cosmetic Act and regulations thereunder, including regulations governing the development, marketing, labeling, promotion, manufacturing and export of our products. Failure to comply with applicable requirements can lead to sanctions, including withdrawal of products from the market, recalls, refusal to authorize government contracts, product seizures, civil money penalties, injunctions and criminal prosecution.

The Federal Food, Drug and Cosmetic Act requires that medical devices introduced to the United States market, unless exempted by regulation, be the subject of either a pre-market notification clearance, known as a 510(k) clearance or 510(k) de novo clearance, or a pre-market approval (“PMA”). Some of our potential future clinical products may require a 510(k) or 510(k) de novo clearance, while others may require a PMA. With respect to devices reviewed through the 510(k) process, we may not market a device until an order is issued by the FDA finding our product to be substantially equivalent to a legally marketed device known as a predicate device. A 510(k) submission may involve the presentation of a substantial volume of data, including clinical data. The FDA may agree that the product is substantially equivalent to a predicate device and allow the product to be marketed in the United States. On the other hand, the FDA may determine that the device is not substantially equivalent and require a PMA or a de novo 510(k), or require further information, such as additional test data, including data from clinical studies, before it is able to make a determination regarding substantial equivalence. By requesting additional information, the FDA can delay market introduction of our products. Delays in receipt of or failure to receive any necessary 510(k) clearance or PMA approval, or the imposition of stringent restrictions on the labeling and sales of our products, could have a material adverse effect on our business, results of operations and financial condition. If the FDA indicates that a PMA is required for any of our potential future clinical products, the application will require extensive clinical studies, manufacturing information and likely review by a panel of experts outside the FDA. Clinical studies to support either a 510(k) submission or a PMA application would need to be conducted in accordance with FDA requirements. Failure to comply with FDA requirements could result in the FDA’s refusal to accept the data or the imposition of regulatory sanctions. We cannot assure that any necessary 510(k) clearance or PMA approval will be granted on a timely basis, or at all. To the extent we seek FDA 510(k) clearance or FDA pre-market approval for other diagnostic tests, any delay by or failure of the FDA to clear or approve those diagnostic tests may adversely affect our consolidated revenues, results of operations and financial condition.

If we or our suppliers fail to comply with FDA requirements for production, marketing and post-market monitoring of our products, we may not be able to market our products and services and may be subject to stringent penalties, product restrictions or recall; further improvements to our manufacturing operations may be required that could entail additional costs.

The commercialization of our products could be delayed, halted or prevented by applicable FDA regulations. If the FDA were to view any of our actions as non-compliant, it could initiate enforcement actions, such as a warning letter and possible imposition of penalties. For instance, we are subject to a number of FDA requirements, including compliance with the FDA’s Quality System Regulations “QSR” requirements, which establish extensive requirements for quality assurance and control as well as manufacturing procedures. Failure to comply with these regulations could result in enforcement actions for us or our potential suppliers. Adverse FDA actions in any of these areas could significantly increase our expenses and reduce our revenue. We will need to undertake steps to maintain our operations in line with the FDA’s QSR requirements. Some components of OVA1 are manufactured by other companies and we are required to ensure that, to the extent that we incorporate those components into our finished OVA1 test, we use those components in compliance with QSR. Any failure to do so would have an adverse effect on our ability to commercialize OVA1. Our suppliers’ manufacturing facilities, since they manufacture finished kits that we use in OVA1, are subject to periodic regulatory inspections by the FDA and other federal and state regulatory agencies. Our facility also is subject to FDA inspection. We or our suppliers may not satisfy such regulatory requirements, and any such failure to do so may adversely affect our business, financial condition and results of operations.

If our suppliers fail to produce acceptable or sufficient stock, make changes to the design or labeling of their biomarker kits or discontinue production of existing biomarker kits or instrument platforms, we may be unable to meet market demand for OVA1.

The commercialization of our OVA1 test depends on the supply of five different immunoassay kits from third-party manufacturers run on automated instruments. Failure by any of these manufacturers to produce kits that pass Vermillion’s quality control measures might lead to back-order and/or loss of revenue due to missed sales and customer dissatisfaction. In addition, if the design or labeling of any kit were to change, continued OVA1 supply could be threatened since new validation and submission to the FDA for 510(k) clearance could be required as a condition of sale. Discontinuation of any of these kits would require identification, validation and 510(k) submission on a revised OVA1 design. Likewise, discontinuation or failure to support or service the instruments may pose risk to ongoing operations.

Effective December 2014, one of the five immunoassay component kits that are used in OVA1 ceased to be supported on the instrument as the manufacturer transitioned to a newer platform. While we have not experienced and do not anticipate disruption of ongoing operations, failure of the manufacturer to provide extended service or support might harm our business. Overa consolidates the five OVA1 immunoassays onto a single mainstream automated platform and substitutes a new immunoassay component kit for the discontinuing kit as a mitigating action. However, we have not yet received a 510(k) clearance from the FDA for Overa. No assurances can be made that the FDA will clear our 510(k) submission, which was made in March 2015. Any resulting disruption to our supply of OVA1 may adversely affect our business, financial condition and results of operations.

If we fail to maintain our rights to utilize intellectual property directed to diagnostic biomarkers, we may not be able to offer diagnostic tests using those biomarkers.

One aspect of our business plan is to develop diagnostic tests based on certain biomarkers, which we have the right to utilize through licenses with our academic collaborators, such as Johns Hopkins University School of Medicine and the University of Texas M.D. Anderson Cancer Center. In some cases, our collaborators own the entire right to the biomarkers. In other cases, we co-own the biomarkers with our collaborators. If, for some reason, we lose our license to biomarkers owned entirely by our collaborators, we may not be able to use those biomarkers in diagnostic tests. If we lose our exclusive license to biomarkers co-owned by us and our collaborators, our collaborators may license their share of the intellectual property to a third party that may compete with us in offering diagnostic tests, which would materially adversely affect our business, results of operations and financial condition.

If a third party infringes on our proprietary rights, we may lose any competitive advantage we may have as a result of diversion of our time, enforcement costs and the loss of the exclusivity of our proprietary rights.

Our success depends in part on our ability to maintain and enforce our proprietary rights. We rely on a combination of patents, trademarks, copyrights and trade secrets to protect our technology and brand. We have

submitted a number of patent applications covering biomarkers that may have diagnostic or therapeutic utility. Our patent applications may or may not result in additional patents being issued.

If third parties engage in activities that infringe on our proprietary rights, we may incur significant costs in asserting our rights, and the attention of our management may be diverted from our business. We may not be successful in asserting our proprietary rights, which could result in our patents being held invalid or a court holding that the competitor is not infringing, either of which may harm our competitive position. We cannot be sure that competitors will not design around our patented technology.

We also rely upon the skills, knowledge and experience of our technical personnel. To help protect our rights, we require all employees and consultants to enter into confidentiality agreements that prohibit the disclosure of confidential information. These agreements may not provide adequate protection for our trade secrets, knowledge or other proprietary information in the event of any unauthorized use or disclosure. If any trade secret, knowledge or other technology not protected by a patent were to be disclosed to or independently developed by a competitor, it could have a material adverse effect on our business, consolidated results of operations and financial condition.

If others successfully assert their proprietary rights against us, we may be precluded from making and selling our products or we may be required to obtain licenses to use their technology.

Our success depends on avoiding infringing on the proprietary technologies of others. If a third party were to assert claims that we are violating its patents, we might incur substantial costs defending ourselves in lawsuits against charges of patent infringement or other unlawful use of another’s proprietary technology. Any such lawsuit may involve considerable management and financial resources and may not be decided in our favor. If we are found liable, we may be subject to monetary damages or an injunction prohibiting us from using the technology. We may also be required to obtain licenses under patents owned by third parties and such licenses may not be available to us on commercially reasonable terms, if at all.

Future litigation against us could be costly and time consuming to defend.

We are from time to time subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our clients in connection with commercial disputes, employment claims made by current or former employees, and claims brought by third parties alleging infringement of their intellectual property rights. In addition, we may bring claims against third parties for infringement of our intellectual property rights. Litigation may result in substantial costs and may divert our attention and resources, which may adversely affect our business, results of operations and financial condition.

An unfavorable judgment against us in any legal proceeding or claim could require us to pay monetary damages. In addition, an unfavorable judgment in which the counterparty is awarded equitable relief, such as an injunction, could harm our business, results of operations and financial condition.

Our diagnostic efforts may cause us to have significant product liability exposure.

The testing, manufacturing and marketing of medical diagnostic tests entail an inherent risk of product liability claims. Potential product liability claims may exceed the amount of our insurance coverage or may be excluded from coverage under the terms of the policy. We will need to increase our amount of insurance coverage in the future if we are successful at introducing new diagnostic products, and this will increase our costs. If we are held liable for a claim or for damages exceeding the limits of our insurance coverage, we may be required to make substantial payments. This may have an adverse effect on our business, financial condition and results of operations.



Because our business is highly dependent on key executives and employees, our inability to recruit and retain these people could hinder our business plans.

We are highly dependent on our executive officers and certain key employees. Our executive officers and key employees are employed at will by us. Any inability to engage new executive officers or key employees could impact operations or delay or curtail our research, development and commercialization objectives. To continue our research and product development efforts, we need people skilled in areas such as clinical operations, regulatory affairs and clinical diagnostics. Competition for qualified employees is intense.

If we lose the servicesThe success of any executive officers or key employees,ASPiRA IVD depends on our ability to achieve ourgenerate and maintain new business objectives could be harmed, which in turnawards and contracts, and if we fail to do so, it could adversely affect our business, financial condition and results of operations.

Business interruptions could limitThe success of ASPiRA IVD depends on our ability to operategenerate new business awards and new customers and contracts for clinical development services and other services. The time between when a study is awarded and when it goes to contract can be several months, and prior to a new business award going to contract, our business.

potential customers will be able to cancel the award without notice. We expect that, once an award goes to contract, the majority of our customers will be able to terminate the contract with 30 days' notice. Our operations, as well as thoseIVD contracts may be delayed or terminated by our customers or reduced in scope for a variety of reasons beyond our control, including the following:

As a result, we expect that contract terminations, delays and modifications will be a regular part of ASPiRA IVD’s business. In the event of termination, ASPiRA IVD’s contracts will provide for fees for winding down the project, which include both fees incurred and actual and non-cancellable expenditures, and may also include a fee to cover a percentage of the collaboratorsremaining professional fees on which we depend, are vulnerable to damage or interruption from fire; natural disasters, including earthquakes; computer viruses; human error; power shortages; telecommunication failures; international acts of terror; and similar events. Although we have certain business continuity plans in place, we have not established a formal comprehensive disaster recovery plan, and our back-up operations and business interruption insurancethe project. These fees may not be adequatesufficient for us to compensate us for losses wemaintain our margins, and termination may suffer. A significant business interruption could result in losseslower resource utilization rates and therefore lower operating margins. Cancellation of a clinical trial may also result in the unwillingness or damages incurredinability of our customer to satisfy certain associated accounts receivable. Additionally, a change in the timing of a new business award could affect the period over which we recognize revenue and reduce our revenue in any one quarter. If ASPiRA IVD is unable to generate new business awards on a timely basis and subsequently enter into and maintain contracts for such awards, our business, financial condition and results of operations could be adversely affected.

Operating results for ASPiRA IVD may fluctuate significantly between fiscal quarters, which may adversely affect the market price of our stock.

Operating results for ASPiRA IVD may fluctuate significantly from quarter to quarter and may be influenced by usa variety of factors, such as:

ASPiRA IVD’s operating results for any particular quarter will not necessarily be a meaningful indicator of its future results. The resulting fluctuations in the Company’s quarterly operating results could negatively affect the market price and require usliquidity of shares of our common stock.

If we underprice our IVD contracts, overrun our IVD cost estimates or fail to ceasereceive approval for or curtail our operations.

Legislative actions resultingexperience delays in higher compliance costs maydocumentation of IVD change orders, it could adversely affect our business, financial condition and results of operations.

Compliance with laws, regulationsWe plan to price our IVD contracts based on assumptions regarding the scope of work required and standards relatingcost to corporate governance and public disclosure, includingcomplete the Sarbanes-Oxley Act of 2002, and new regulations adopted bywork. We will bear the SEC, are resulting in increased compliance costs. We, like all other public companies, are incurring expenses and diverting employees’ time in an effort to comply with Section 404 of the Sarbanes-Oxley Act of 2002. The SEC and other regulators have continued to adopt new rules and regulations and make additional changes to existing regulations that requirefinancial risk if we initially underprice our compliance. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act,contracts or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations. Compliance with these evolving standards will result in increased general and administrative expenses and may cause a diversion ofotherwise overrun our time and attention from revenue-generating activities to compliance activities.

Changes in healthcare policy could increase our costs and impact sales of and reimbursement for our tests.

In March 2010, President Barack Obama signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, the “PPACA”). Pursuant to the PPACA, beginning in 2013, each medical device manufacturer has paid a sales tax in an amount equal to 2.3% of the price forcost estimates, which such manufacturer sells its medical devices. The PPACA also mandated a reduction in payments of 1.75% for the years 2011 through 2015 for clinical laboratory services paid under the Medicare Clinical Laboratory Fee Schedule. This adjustment was in addition to a productivity adjustment to the Clinical Laboratory Fee Schedule. In April 2014, President Barack Obama signed the Protecting Access to Medicare Act of 2014, which halted certain reductions in payment mandated by the PPACA as well as certain CMS policies, and will instead establish a market-based reimbursement system for clinical laboratories beginning in 2017 and require reporting of certain private payer reimbursement data by laboratories beginning in 2016. CMS also issued various regulations and guidance generally effective January 1, 2014 that limited reimbursement for clinical laboratory tests as a general matter, but permitted the continued ability for CMS to pay for Multianalyte Assays with Algorithmic Analyses in certain circumstances. In addition to these changes, a number of states are also contemplating significant reform of their healthcare policies. We cannot predict whether future healthcare initiatives will be implemented at the federal or state level, or the effect any future legislation or regulation will have on us. The taxes imposed by the PPACA have resulted in decreased profits to us and lower reimbursements by payers for our tests. Other changes to healthcare laws may adversely affect our business, financial condition and results of operations.

We are subject to environmental laws and potential exposure to environmental liabilities.

We are subject to various international, federal, state and local environmental laws and regulations that govern our operations, including the handling and disposal of non-hazardous and hazardous wastes, the recycling and treatment of electrical and electronic equipment, and emissions and discharges into the environment. Failure to comply with such laws and regulations could result in costs for corrective action, penalties or the imposition of other liabilities. We are also subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances into the environment. Under certain of these laws and regulations, a current or previous owner or operator of property may be liable for the costs to remediate hazardous substances or petroleum products on or

from its property, without regard to whether the owner or operator knew of, or caused, the contamination, as well as incur liability to third parties affected by such contamination. The presence of, or failure to remediate properly, such substances could adversely affect ASPiRA IVD’s cash flows and financial performance. In addition, we anticipate that contracts with ASPiRA IVD’s customers will be subject to change orders, which may occur when the value and the abilityscope of work we perform needs to transfer or encumber such property.

The success of ASPiRA LABS depends,be modified from that originally contemplated in part, on our ability to generate sufficient demandcustomer contracts. This can occur, for its services to cover the laboratory’s operating costs, andexample, when there is no assurance that we will be able to do so successfully.

The launch of our new clinical laboratory, ASPiRA LABS, involvesa change in a key study assumption or parameter or a significant costs to us, including the costs of laboratory equipment and facilities, outside consulting fees for branding and other services and other general and administrative expenses.change in timing. We expect to continue to incur significant costs to operate ASPiRA LABS in the future, such as salaries and related expenses for personnel, regulatory compliance costs and ongoing costs of outsourced billing services. There is no guarantee that we will be able to generate a sufficient volume of patients to access the laboratory and utilize its offerings to cover the fixed and ongoing costs of ASPiRA LABS.

Revenue from ASPiRA LABS has been minimal to date, and there is no guarantee that we be able to generate sufficient revenue in the future to offset our costs. Our inability to successfully develop sufficient demand for the diagnostic tests processed by the laboratory could delay or prevent ASPiRA LABS from generating material revenue, and we may not achieve revenues or profitability from ASPiRA LABS in the foreseeable future, if at all. If we are unable to generate revenues or achieve profitability, we may be unable to continue our ASPiRA LABS operationssuccessfully negotiate changes in scope or wechange orders on a timely basis or at all, which may be unable to expand our offerings at ASPiRA LABS beyond ovarian cancer to other gynecologic conditions with high unmet need as we intend.

The launch of ASPiRA LABS requiresrequire us to comply with numerous laws and regulations, which is expensive and time-consuming and could adversely affect our business, financial condition and resultsincur cost outlays ahead of operations, andthe receipt of any failure to comply could result in exposure to substantial penalties and other harm to our business.

additional revenue. In June 2014, we launched a clinical laboratory, ASPiRA LABS. Clinical laboratories that perform tests on human subjectsaddition, under generally accepted accounting principles in the United States for the purpose of providing information for the diagnosis, prevention or treatment of disease must be certified under CLIA and licensed under applicable state laboratory laws. CLIA regulates the quality of clinical laboratory testing by requiring laboratories to comply with various technical, operational, personnel and quality requirements intended to ensure that the services provided are accurate, reliable and timely. State laws may require that additional quality standards be met and that detailed review of scientific validations and technical procedures for tests occur.    

We received our temporary CLIA Certificate of Registration effective February 18, 2014 and, as of the date of this Quarterly Report on Form 10-Q,America we have obtained a full Certificate of Accreditation and state laboratory licensure from certain states. We are subject to periodic surveys and inspections to maintain our CLIA certification, and such certification is also required to obtain payment from Medicare, Medicaid and certain other third-party payers. Failure to comply with CLIA or state law requirements may result in the imposition of corrective action or the suspension or revocation of our CLIA certification or state licenses. If our CLIA certification or state licenses are suspended or revoked or our right to bill the Medicare and Medicaid programs or other third-party payers is suspended, we would no longerwill not be able to sell our tests, which wouldrecognize additional revenue anticipated from change orders until appropriate documentation is received by us from the customer authorizing the change. However, if we incur additional expense in anticipation of receipt of that documentation, we will need to recognize the expense as incurred. Any of the foregoing could adversely affect our business, financial condition and results of operations.

 In addition, no assurance can be given thatThe operation of ASPiRA LABS’  suppliersIVD will depend on the effectiveness and availability of our information systems, including the information systems we use to provide services to our customers and to store employee data, and failures of these systems, including in connection with cyber-attacks, may materially limit our operations or commercial partners will remain in compliance with applicable CLIAhave an adverse effect on our reputation.

The information systems we intend to use for our IVD trial business are comprised of systems we have purchased or developed, legacy information systems from Vermillion and, increasingly, web-enabled and other federal or state regulatory requirements for laboratory operations and testing. ASPiRA LABS’integrated information systems. In using these information systems, we may rely on third-party vendors to provide hosting services, where our infrastructure is dependent upon the reliability of their underlying platforms, facilities and procedurescommunications systems. We also plan to utilize integrated information systems that we provide customers access to or install for our customers in conjunction with our delivery of services.

As the breadth and thosecomplexity of ASPiRA LABS’ suppliersIVD’s information systems grows, we will increasingly be exposed to the risks inherent in maintaining the stability of our legacy systems due to prior customization, attrition of employees or vendors involved in their development, and commercial partners are subject to ongoing regulation, including periodic inspection by regulatory and other government authorities. Possible regulatory actions for non-compliance could include warning letters, fines, damages, injunctions, civil penalties, recalls, seizuresobsolescence of ASPiRA LABS’ products, and criminal prosecution.

 Our clinical laboratory business is also subject to regulation at both the federal and state level in the United States,underlying technology as well as regulationrisks from the increasing number and scope of external data breaches on companies generally. Because certain customers and clinical trials may be dependent upon these legacy systems, we will also face an increased level of embedded risk in maintaining the legacy systems and limited options to mitigate such risk. We are also exposed to risks associated with the availability of all of our information systems, including:

The materialization of any of these risks may impede the processing of data, the delivery of databases and services, and the day-to-day management of our IVD trial business and could result in the corruption, loss or unauthorized disclosure of proprietary, confidential or other jurisdictions outsidedata. While we have disaster recovery plans in place in line with applicable regulations and industry standards, they might not adequately protect us in the event of a system failure. Despite any precautions we take, damage from fire, floods, hurricanes, the United States, including:

• Medicareoutbreak or escalation of war, acts of terrorism, power loss, telecommunications failures, computer viruses, break-ins and Medicaid coverage, coding and payment regulations applicablesimilar events at our various computer facilities or those of our third-party vendors could result in interruptions in the flow of data to clinical laboratories;

• the Federal Anti Kickback Statute and state anti-kickback prohibitions;

us

and from us to our customers. Corruption or loss of data may result in the need to repeat a trial at no cost to the customer, but at significant cost to us, the termination of a contract or damage to our reputation. As our business continues its efforts to expand globally, these types of risks may be further increased by instability in the geopolitical climate of certain regions, underdeveloped and less stable utilities and communications infrastructure, and other local and regional factors. Additionally, significant delays in system enhancements or inadequate performance of new or upgraded systems could damage our reputation and harm our business. Although we carry property and business interruption insurance which we believe is customary for our industry, our coverage might not be adequate to compensate us for all losses that may occur.

•Unauthorized disclosure of sensitive or confidential data, whether through systems failure or employee negligence, cyber-attacks, fraud or misappropriation, could damage our reputation and cause us to lose customers and, to the federal physician self-referral prohibition, commonly known asextent any such unauthorized disclosure compromises the Stark Law,privacy and state self-referral prohibitions;

• the Medicare civil monetary penaltysecurity of individually identifiable health information, could also cause us to face sanctions and exclusion requirements;

• the Federal False Claims Act civil and criminal penalties and state equivalents; and

•fines under the Federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”);

Many2009. Similarly, we have been and expect that we will continue to be subject to attempts to gain unauthorized access to or through our information systems or those we internally or externally develop for our customers, including a cyber-attack by computer programmers and hackers who may develop and deploy viruses, worms or other malicious software programs, process breakdowns, denial-of-service attacks, malicious social engineering or other malicious activities, or any combination of the foregoing. In addition, we may be susceptible to physical or computer-based attacks by terrorists or hackers due to ASPiRA IVD’s role in the contract research organization industry. These concerns about security are increased when information is transmitted over the Internet. Threats include cyber-attacks such as computer viruses, worms or other destructive or disruptive software, and any of these laws and regulations prohibit a laboratory from making payments or furnishing other benefits to influence the referral of tests (by physicians or others) that are billed to Medicare, Medicaid or certain other federal or state healthcare programs. The penalties for violation of these laws and regulations may include monetary fines, criminal and civil penalties and/or suspension or exclusion from participation in Medicare, Medicaid and other federal healthcare programs. Several states have similar laws that may apply even in the absence of government payers. HIPAA and HITECH and similar state laws seek to protect the privacy and security of individually identifiable health information, and penalties for violations of these laws may include required reporting of breaches, monetary fines and criminal or civil penalties.

While we seek to conduct our business in compliance with all applicable laws and develop compliance policies to address risk as appropriate, many of the laws and regulations applicable to us are vague or indefinite and have not been interpreted by governmental authorities or the courts. These laws or regulations also could in the future be interpreted or applied by governmental authorities or the courtsresult in a manner thatdegradation or disruption of our services or damage to our properties, equipment and data. They could require usalso compromise data security. If such attacks are not detected immediately, their effect could be compounded. Successful attacks could result in negative publicity, significant remediation and recovery costs, legal liability and damage to change our operations. 

Any action brought against us for violation of these or other laws or regulations (including actions brought by private qui tam “whistleblower” plaintiffs), even if successfully defended, could divert management’s attention from our business, damage our reputation limit our ability to provide services, decrease demand for our services and cause us to incur significant expenses for legal fees and damages. If we fail to comply with applicable laws and regulations, we could suffer civil and criminal penalties, fines, recoupment of funds received by us, exclusion from participation in federal or state healthcare programs, and the loss of various licenses, certificates and authorizations necessary to operate our business. We also could potentially incur additional liabilities from third-party claims. If any of the foregoing were to occur, it could have a materialan adverse effect on our business, financial condition and results of operations.

If ASPiRA IVD fails to perform its services in accordance with contractual requirements, regulatory standards and ethical considerations, we could be subject to significant costs or liability and our business or reputation could be harmed.

In the future, we planWe anticipate that ASPiRA IVD will contract with biopharmaceutical companies to developperform a wide range of services to assist them in bringing new drugs to market. Our IVD trial services will include monitoring clinical trials, data and perform LDTs atlaboratory analysis, patient recruitment and other related services. Such services are complex and subject to contractual requirements, regulatory standards and ethical considerations. For example, ASPiRA LABS. If the FDA finalizes its October 3, 2014 draft guidance documents that outlineIVD will be required to adhere to applicable regulatory requirements such as the FDA’s proposalQuality System Regulations, CLIA, and current Good Clinical Practices, which govern, among other things, the design, conduct, performance, monitoring, auditing, recording, analysis, and reporting of clinical trials. If ASPiRA IVD fails to actively regulate LDTs, weperform its services in accordance with these requirements, regulatory authorities may needtake action against us or our customers. Such actions may include sanctions (e.g., injunctions or the failure of such regulatory authorities to obtain a 510(k) clearancegrant marketing approval of products), imposition of clinical holds or pre-market approval for our future LDTs, anddelays, suspension or withdrawal of approvals, rejection of data collected in studies conducted by ASPiRA IVD, license revocation, product seizures or recalls, operational restrictions, civil or criminal penalties or prosecutions, damages or fines. Additionally, there is no guaranteea risk that we would ever procure the needed FDA clearanceactions by regulatory authorities, if they result in significant inspectional observations or approval. We also would needother measures, could harm our reputation and cause customers not to comply with ongoing regulatory requirements.

We intendaward ASPiRA IVD future contracts or to developcancel existing contracts. Any such action could have an adverse effect on our business, financial condition and perform LDTs at ASPiRA LABS. The FDA has historically exercised enforcement discretion and not required approvals or clearances for LDTs. However, on October 3, 2014, the FDA issued two draft guidance documents, entitled “Framework for Regulatory Oversightresults of Laboratory Developed Tests (LDTs)” and “FDA Notification and Medical Device Reporting for Laboratory Developed Tests (LDTs),” respectively, that set forth a proposed risk-based regulatory framework that would apply varying levels of FDA oversight to LDTs.

According to the draft guidance documents, all laboratories with LDTs—except for those only performing forensic testing or certain LDTs for transplantation—would need to comply with some basic statutory requirements, regardless of the risks of the tests, including adverse event reporting, corrections and removals reporting and registration and listing or notification.

In addition, “high” and “moderate” risk tests not subject to an exemption will need to be the subject of a PMA or 510(k) submitted to the FDA in a phased-in manner. High-risk tests are those that are classified as Class III devices. Within those high-risk devices, the FDA identifies the “highest risk devices” as (1) LDTs with the sameoperations.

intended use as an approved or cleared companion diagnostic; (2) LDTs with the same intended use as an FDA-approved Class III device; and (3) certain LDTs for determining safety and effectiveness of blood or blood products. Moderate-risk tests are those that are classified as Class II devices. The FDA has indicated that it does not intend to modify its policy of enforcement discretion until the draft guidance documents are finalized. It is unclear at this time when, or if, the draft guidance documents will be finalized, and, if so, how the final framework might differ from the proposal. In addition, the new regulatory requirements are proposed to be phased in consistent with the schedule set forth in the guidance documents for tests that are on the market at the time the guidance documents are finalized.

Legislative proposals addressing the FDA’s oversight of LDTs have been previously introduced, and we expect that new legislative proposals will be introduced from time to time. The likelihood that Congress will pass such legislation and the extent to which such legislation may affect the FDA’s plans to regulate LDTs as medical devices is difficult to predict.

Even before the FDA finalizes such guidance documents, the FDA may assert that a test that we believe to be an LDT is not an LDT and could require us to seek clearance or approval to offer such tests for clinical use. If the FDA pre-market review or approval is required for any of the future LDTs we may develop, we may be forced to stop selling our tests or be required to modify claims or make such other changes while we work to obtain FDA clearance or approval. Our business, results of operations and financial condition would be negatively affected until such review is completed and clearance to market or approval is obtained.

If pre-market review is required by the FDA or if we decide to voluntarily pursue FDA pre-market review of our future LDTs, there can be no assurance that any tests we develop in the future will be cleared or approved on a timely basis, if at all. Obtaining FDA clearance or approval for diagnostics can be expensive, time consuming and uncertain, and for higher-risk devices generally takes several years and requires detailed and comprehensive scientific and clinical data. In addition, medical devices are subject to ongoing FDA obligations and continued regulatory oversight and review. Ongoing compliance with FDA regulations for those tests would increase the cost of conducting our business and subject us to heightened regulation by the FDA and penalties for failure to comply with these requirements.

Risks Related to Owning Our Stock

The liquidity and trading volume of our common stock may be low, and our ownership is concentrated.

The liquidity and trading volume of our common stock has at times been low in the past and may again be low in the future. If the liquidity and trading volume of our common stock is low, this could adversely impact the trading price of our shares, our ability to issue stock and our stockholders’ ability to obtain liquidity in their shares. The issuance of common stock by us in May 2013 and subsequent warrant exercise in December 2013, the issuance of common stock by us in December 2014 and the issuance of common stock by us in July 2015, involved a significant issuance of stock to a limited number of investors, significantly increasing the concentration of our share ownership in a few holders.

According to information provided on Schedules 13D and 13G, five persons beneficially owned approximately 62% of our outstanding shares of common stock as of September  30, 2015, and under a May 2013 stockholders agreement, two of these persons have certain rights to designate a director to be nominated by us to serve on the Board of Directors. As a result, these stockholders will be able to affect the outcome of, or exert significant influence over, all matters requiring stockholder approval, including the election and removal of directors and any change in control. In particular, this concentration of ownership of our common stock could have the effect of delaying or preventing a change in control of us or otherwise discouraging or preventing a potential acquirer from attempting to obtain control of us. This, in turn, could have a negative effect on the market price of our common stock. It could also prevent our stockholders from realizing a premium over the market prices for their shares of common stock. Moreover, the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders. The concentration of ownership also contributes to the low trading volume and volatility of our common stock.

Our stock price has been, and may continue to be, highly volatile.

The trading price of our common stock has been highly volatile and could continue to be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including: