UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DCD.C. 20549
FORM 10-Q
(Mark One)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number:File Number: 001-34810
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(Exact |
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Delaware |
| 33-0595156 |
(State or |
| (I.R.S. Employer Identification No.) |
12117 Bee Caves Road, Building Three, Suite 100, Austin, Texas |
| 78738 |
(Address of |
| (Zip Code) |
Registrant’s telephone number, including area code: (512) 519-0400
(Registrant’s Telephone Number, Including Area Code)
1Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | AWH | The NASDAQ Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer | Smaller reporting company ☑ Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☑ No ☐
As of October 31, 2017,April 30, 2021, the registrant had 59,998,748111,946,449 shares of common stock, par value $0.001 per share, outstanding.
21
VERMILLION,ASPIRA WOMEN’S HEALTH INC.
FORM 10-Q
For the Quarter Ended March 31, 2021
Table of Contents
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| Page |
3 | ||
3 | ||
| 3 | |
| 4 | |
| 5 | |
| 6 | |
| Notes to Condensed Consolidated Financial Statements (unaudited) | 7 |
Management's Discussion and Analysis of Financial Condition and Results of Operations | ||
27 | ||
27 | ||
28 | ||
28 | ||
28 | ||
29 | ||
30 |
Vermillion, OVA1 and OveraThe following are registered and unregistered trademarksand service marksof Vermillion, Aspira Women’s HealthInc.
:VERMILLION®,ASPIRA WOMEN’S HEALTH™, OVA1®, OVERA®,ASPIRA LABS®,ASPIRAIVD®,OVACALC®,ASPIRA GENETIXSM, OVA1PLUS®,OVASIGHTTM, ENDOCHECK™,OVAINHERIT™,ASPIRA SYNERGYSM,, and OVA360™.
32
PART I - FINANCIAL INFORMATION
Vermillion,Aspira Women’s Health Inc.
Condensed Consolidated Balance Sheets
(Amounts in Thousands, Except Share and Par Value Amounts)
(Unaudited)
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| September 30, |
| December 31, | March 31, |
| December 31, | ||||
| 2017 |
| 2016 | 2021 |
| 2020 | ||||
Assets |
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Current assets: |
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Cash and cash equivalents | $ | 7,752 |
| $ | 5,242 | $ | 59,369 |
| $ | 16,631 |
Accounts receivable |
| 221 |
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| 275 |
| 952 |
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| 865 |
Prepaid expenses and other current assets |
| 175 |
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| 498 |
| 981 |
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| 1,077 |
Inventories |
| 155 |
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| 93 |
| 71 |
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| 30 |
Total current assets |
| 8,303 |
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| 6,108 |
| 61,373 |
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| 18,603 |
Property and equipment, net |
| 1,364 |
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| 1,911 |
| 533 |
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| 583 |
Right-of-use assets |
| 391 |
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| 406 | |||||
Other assets |
| 11 |
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| - |
| - |
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| 13 |
Total assets | $ | 9,678 |
| $ | 8,019 | $ | 62,297 |
| $ | 19,605 |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable | $ | 514 |
| $ | 881 | $ | 1,587 |
| $ | 1,103 |
Accrued liabilities |
| 1,430 |
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| 1,464 |
| 3,471 |
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| 3,618 |
Deferred Revenue |
| 62 |
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| - | |||||
Current portion long-term debt |
| 645 |
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| 645 | |||||
Short-term debt |
| 191 |
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| 182 |
| 408 |
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| 611 |
Other current liabilities |
| 32 |
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| 34 | |||||
Lease liability |
| 37 |
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| 23 | |||||
Total current liabilities |
| 2,229 |
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| 2,561 |
| 6,148 |
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| 6,000 |
Non-current liabilities: |
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Long-term debt |
| 1,528 |
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| 1,667 |
| 3,428 |
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| 3,477 |
Other non-current liabilities |
| - |
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| 29 | |||||
Lease liability |
| 396 |
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| 409 | |||||
Total liabilities |
| 3,757 |
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| 4,257 |
| 9,972 |
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| 9,886 |
Commitments and contingencies (Note 3) |
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Stockholders’ equity: |
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Common stock, par value $0.001 per share, 150,000,000 shares authorized at |
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September 30, 2017 and December 31, 2016; 59,998,748 and 52,328,492 shares |
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issued and outstanding at September 30, 2017 and December 31, 2016, |
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respectively |
| 60 |
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| 52 | |||||
Common stock, par value $0.001 per share, 150,000,000 shares authorized at March 31, 2021 and December 31, 2020; 111,716,852 and 104,619,876 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively |
| 112 |
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| 105 | |||||
Additional paid-in capital |
| 398,959 |
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| 389,266 |
| 498,199 |
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| 449,680 |
Accumulated deficit |
| (393,098) |
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| (385,556) |
| (445,986) |
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| (440,066) |
Total stockholders’ equity |
| 5,921 |
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| 3,762 |
| 52,325 |
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| 9,719 |
Total liabilities and stockholders’ equity | $ | 9,678 |
| $ | 8,019 | $ | 62,297 |
| $ | 19,605 |
4
See accompanying notes to the unaudited condensed consolidated financial statements.
53
Vermillion,Aspira Women’s Health Inc.
Condensed Consolidated Statements of Operations
(Amounts in Thousands, Except Share and Per Share Amounts)
(Unaudited)
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| Three Months Ended | ||||
| Three Months Ended September 30, |
| Nine Months Ended September 30, | March 31, | ||||||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2021 |
| 2020 | ||||||
Revenue: |
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Product | $ | 657 |
| $ | 581 |
| $ | 2,195 |
| $ | 1,640 | $ | 1,416 |
| $ | 1,185 |
Genetics |
| 80 |
| $ | 25 | |||||||||||
Service |
| 42 |
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| 42 |
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| 128 |
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| 197 |
| - |
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| 10 |
Total revenue |
| 699 |
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| 623 |
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| 2,323 |
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| 1,837 |
| 1,496 |
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| 1,220 |
Cost of revenue:(1) |
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Cost of revenue(1): |
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Product |
| 495 |
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| 461 |
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| 1,345 |
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| 1,516 |
| 648 |
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| 665 |
Genetics |
| 245 |
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| 130 | |||||||||||
Service |
| 284 |
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| 356 |
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| 855 |
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| 416 |
| - |
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| 5 |
Total cost of revenue |
| 779 |
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| 817 |
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| 2,200 |
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| 1,932 |
| 893 |
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| 800 |
Gross profit (loss) |
| (80) |
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| (194) |
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| 123 |
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| (95) | |||||
Gross profit |
| 603 |
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| 420 | |||||||||||
Operating expenses: |
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Research and development(2) |
| 192 |
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| 370 |
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| 685 |
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| 1,868 |
| 872 |
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| 395 |
Sales and marketing(3) |
| 1,050 |
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| 1,606 |
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| 3,114 |
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| 5,514 |
| 3,108 |
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| 2,115 |
General and administrative(4) |
| 1,177 |
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| 1,295 |
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| 3,825 |
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| 4,645 |
| 2,509 |
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| 1,710 |
Total operating expenses |
| 2,419 |
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| 3,271 |
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| 7,624 |
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| 12,027 |
| 6,489 |
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| 4,220 |
Loss from operations |
| (2,499) |
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| (3,465) |
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| (7,501) |
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| (12,122) |
| (5,886) |
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| (3,800) |
Interest income (expense), net |
| (10) |
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| (11) |
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| (32) |
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| (16) |
| (24) |
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| 8 |
Other income (expense), net |
| - |
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| - |
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| (9) |
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| 16 |
| (10) |
|
| 86 |
Net loss | $ | (2,509) |
| $ | (3,476) |
| $ | (7,542) |
| $ | (12,122) | $ | (5,920) |
| $ | (3,706) |
Deemed dividend on warrant repricing |
| (942) |
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| - |
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| (942) |
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| - | |||||
Net loss attributable to common stockholders | $ | (3,451) |
| $ | (3,476) |
| $ | (8,484) |
| $ | (12,122) | |||||
Net loss per share attributable to common stockholders - basic and diluted | $ | (0.06) |
| $ | (0.07) |
| $ | (0.15) |
| $ | (0.23) | |||||
Net loss per share - basic and diluted | $ | (0.05) |
| $ | (0.04) | |||||||||||
Weighted average common shares used to compute basic and diluted net loss per common share |
| 57,455,786 |
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| 52,237,287 |
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| 55,909,788 |
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| 52,167,543 |
| 108,661,712 |
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| 97,287,461 |
Non-cash stock-based compensation expense included in cost of revenue and operating expenses: |
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(1) Cost of revenue | $ | 29 |
| $ | 27 |
| $ | 108 |
| $ | 73 | $ | 34 |
| $ | 25 |
(2) Research and development |
| 2 |
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| 10 |
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| 7 |
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| 63 |
| 26 |
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| - |
(3) Sales and marketing |
| 38 |
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| 14 |
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| 115 |
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| 70 |
| 139 |
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| 42 |
(4) General and administrative |
| 257 |
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| 210 |
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| 767 |
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| 655 |
| 290 |
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| 202 |
See accompanying notes to the unaudited condensed consolidated financial statements.
64
Consolidated Statements of Changes in Stockholders’ Equity
(Amounts in Thousands, Except Share Amounts)
(Unaudited)
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| Common Stock |
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| Shares |
| Amount |
| Additional Paid-In Capital |
| Accumulated Deficit |
| Total Stockholders’ Equity | ||||
Balance at December 31, 2020 | 104,619,876 |
| $ | 105 |
| $ | 449,680 |
| $ | (440,066) |
| $ | 9,719 |
Net loss | - |
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| - |
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| - |
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| (5,920) |
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| (5,920) |
Common stock issued in conjunction with exercise of stock options | 196,976 |
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| - |
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| 317 |
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| - |
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| 317 |
Common stock issued for restricted stock awards | - |
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| - |
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| - |
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| - |
Common stock issued in conjunction with public offering, net of issuance costs of $0.5 million | 6,900,000 |
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| 7 |
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| 47,713 |
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| - |
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| 47,720 |
Stock compensation charge | - |
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| - |
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| 489 |
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| - |
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| 489 |
Balance at March 31, 2021 | 111,716,852 |
| $ | 112 |
| $ | 498,199 |
| $ | (445,986) |
| $ | 52,325 |
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| Common Stock |
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| Shares |
| Amount |
| Additional Paid-In Capital |
| Accumulated Deficit |
| Total Stockholders’ Equity | ||||
Balance at December 31, 2019 | 97,286,157 |
| $ | 97 |
| $ | 430,802 |
| $ | (422,161) |
| $ | 8,738 |
Net loss | - |
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| - |
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| - |
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| (3,706) |
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| (3,706) |
Common stock issued in conjunction with exercise of stock options | 2,500 |
|
| - |
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| 1 |
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| - |
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| 1 |
Stock compensation charge | - |
|
| - |
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| 269 |
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| - |
|
| 269 |
Balance at March 31, 2020 | 97,288,657 |
| $ | 97 |
| $ | 431,072 |
| $ | (425,867) |
| $ | 5,302 |
See accompanying notes to the unaudited condensed consolidated financial statements.
5
Vermillion,Aspira Women’s Health Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in Thousands)
(Unaudited)
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| Nine Months Ended | Three Months Ended | ||||||||
| September 30, | March 31, | ||||||||
| 2017 |
| 2016 | 2021 |
| 2020 | ||||
Cash flows from operating activities: |
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Net loss | $ | (7,542) |
| $ | (12,122) | $ | (5,920) |
| $ | (3,706) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Non-cash lease expense |
| 16 |
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| - | |||||
Depreciation and amortization |
| 599 |
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| 523 |
| 90 |
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| 56 |
Stock-based compensation expense |
| 997 |
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| 861 |
| 489 |
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| 269 |
Loss on sale and disposal of property and equipment |
| 4 |
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| 3 |
| 1 |
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| 2 |
Changes in operating assets and liabilities: |
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Accounts receivable |
| 54 |
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| (44) |
| (87) |
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| (111) |
Prepaid expenses and other assets |
| 312 |
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| 354 |
| (94) |
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| 14 |
Inventories |
| (62) |
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| (5) |
| (41) |
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| (38) |
Accounts payable, accrued liabilities and other liabilities |
| (401) |
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| (769) |
| 291 |
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| 13 |
Deferred revenue |
| 62 |
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| - | |||||
Net cash used in operating activities |
| (5,977) |
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| (11,199) |
| (5,255) |
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| (3,501) |
Cash flows from investing activities: |
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Purchase of property and equipment |
| (56) |
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| (1,240) |
| (41) |
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| (23) |
Net cash used in investing activities |
| (56) |
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| (1,240) |
| (41) |
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| (23) |
Cash flows from financing activities: |
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Proceeds from private placement offering of common stock, net of issuance costs |
| 5,127 |
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| - | |||||
Proceeds from exercise of common stock warrants, net of issuance costs |
| 3,577 |
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| - | |||||
Proceeds from issuance of DECD loan, net of issuance costs |
| - |
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| 1,967 | |||||
Principal repayment of DECD loan |
| (136) |
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| (73) |
| (3) |
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| (48) |
Repayment of capital lease obligations |
| (25) |
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| (22) | |||||
Proceeds from issuance of common stock from exercise of stock options |
| - |
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| 5 |
| 317 |
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| 1 |
Net cash provided by financing activities |
| 8,543 |
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| 1,877 | |||||
Proceeds from DECD loan |
| — |
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| - | |||||
Proceeds from PPP loan |
| — |
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| - | |||||
Proceeds from exercise of warrants |
| — |
|
| - | |||||
Proceeds from public offering |
| 48,236 | �� |
| - | |||||
Payment of issuance costs for public offering |
| (516) |
|
| - | |||||
Net cash provided by (used in) financing activities |
| 48,034 |
|
| (47) | |||||
Net increase (decrease) in cash and cash equivalents |
| 2,510 |
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| (10,562) |
| 42,738 |
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| (3,571) |
Cash and cash equivalents, beginning of period |
| 5,242 |
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| 18,642 |
| 16,631 |
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| 11,703 |
Cash and cash equivalents, end of period | $ | 7,752 |
| $ | 8,080 | $ | 59,369 |
| $ | 8,132 |
Supplemental disclosure of cash flow information: |
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Cash paid during the period for interest |
| 36 |
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| 24 |
| 29 |
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| 9 |
Supplemental disclosure of non-cash investing and financing activities: |
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Deemed dividend on warrant repricing |
| 942 |
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| - | |||||
Supplemental disclosure of noncash investing and financing activities: |
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Net (decrease) increase in right-of-use assets |
| (15) |
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| 1 |
See accompanying notes to the unaudited condensed consolidated financial statements.
76
Aspira Women’s Health Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Organization
Aspira Women’s Health Inc., formerly known as Vermillion, Inc. (“Vermillion”; VermillionAspira” and its wholly-owned subsidiaries are collectively referred to as the “Company,” “we” or “our”) is incorporated in the state of Delaware, and is engaged in the business of developing and commercializing diagnostic tests for gynecologic disease. The Company currently markets and sells OVA1™the following products and Overa™related services: (1) OVA1, 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; (2) OVERA, a second-generation biomarker panel intended to maintain OVA1’s high sensitivity while improving specificity; (3) OVA1plus, a reflex offering, which uses OVA1 and OVERA as a confirmation for OVA1 intermediate range results and leverages the strengths of OVA1’s Multivariate Index Assay (“MIA”) sensitivity and OVERA’s (MIA2G) specificity and as a result reduces false elevations by over 40%;; (4) Aspira GenetiX, a genetic test for gynecological cancer risk, with a core focus on female cancers, including breast, ovarian, endometrial, uterine and cervical cancers; and (5) Aspira Synergy, the Company’s new decentralized platform and cloud service technology. Through March 31, 2021, the Company’s product and related services revenue was limited to revenue generated by sales of malignancy tests for ovarian cancer (“OVA1”OVA1, OVA1plus and “Overa,” respectively)Aspira GenetiX. The Company sells OVA1 and OVA1plus through Vermillion’sAspira’s wholly-owned Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) certified clinical laboratory, ASPiRA LABS,Aspira Labs, Inc. (“ASPiRA LABS”).
The Company also offers in-vitro diagnostic (“IVD”) trial services to third-party customers through its wholly-owned subsidiary, ASPiRA IVD, Inc. (“ASPiRA IVD”), which commenced operations in June 2016. ASPiRA IVD is a specialized, CLIA certified, laboratory provider dedicated to meeting the unique testing needs of IVD manufacturers seeking to commercialize high-complexity assays.
Going ConcernLiquidity
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 $393,098,000 at September 30, 2017.$445,986,000. The Company also expects to incur a net loss and negative cash flows from operations for 2021.
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The novel coronavirus has since spread to over 100 countries, including every state in the remainder of 2017United States. In March 2020, the World Health Organization declared COVID-19, the disease caused by the novel coronavirus, a pandemic, and the foreseeable future. The Company’s management believes that successful achievementUnited States declared a national emergency with respect to the coronavirus outbreak. This outbreak has severely impacted global economic activity, and many countries and many states in the United States have reacted to the outbreak by instituting quarantines, mandating business and school closures and restricting travel. In addition, many conventions and industry conferences have been canceled.
As a result of the Company’s business objectives will require additional financing. Given these conditions, there is substantial doubt aboutCOVID-19 pandemic and actions taken to contain it, the Company’s ability to continuetest volume, and resulting revenue, decreased significantly in late March and the full month of April 2020 as fewer patients visited their physicians and elective surgeries were postponed 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.
of closures. The Company expectssaw some increases in its test volume towards the latter half of the second quarter and in the third quarter of 2020, and test volume trended back to raise capital through a varietypre-COVID-19 levels during the late third quarter 2020. In order to reduce the impact of sources, which may includelimitations on visiting physician offices due to closures and quarantines, the exercise of common stock warrants, equity offerings, debt financing, collaborations, licensing arrangements, grantsCompany implemented other mechanisms for reaching physicians such as virtual sales representative meetings and government fundingincreased digital sales and strategic alliances. However, additional funding may not be available when needed or on terms acceptablemarketing. Enrollment for future studies has been slower than originally planned due to the Company. Ifimpact of current closures for some states. The full impact of the COVID-19 pandemic continues to evolve as of the date of this filing. As a result, the Company is unable to obtain additional capital, it may not be able to continue sales and marketing, research and development,estimate the extent of the impact of the COVID-19 pandemic on its operations or other operations on the scope or scale of current activity and that could have a material adverse effect on the Company’s business, results of operations and financial condition.liquidity.
As discussed in Note 4, on August 31, 2017, certain investors exercised outstanding warrants for common stock for net proceeds of approximately $3,577,000 after deducting offering expenses.
As discussed in Note 4, on February 17, 2017, the Company completed a private placement pursuant to which certain investors purchased Vermillion common stock and warrants to purchase shares of Vermillion common stock for net proceeds of approximately $5,127,000 after deducting offering expenses.
As discussed in Note 3, in March 2016, the Company entered into ana loan agreement (as amended on March 7, 2018 and April 3, 2020, the “DECD Loan Agreement”) with the State of Connecticut Department of
7
Economic and Community Development (the “Loan Agreement”“DECD”), pursuant to which it may borrow up to $4,000,000 from the State of Connecticut Department of Economic and Community Development (the “DECD”).DECD.
The loan may be prepaid at any time without premium or penalty. An initial disbursement of $2,000,000 was made to the Company inon April 15, 2016 under the DECD Loan Agreement. The Loan Agreement provides thatOn December 3, 2020, the Company received a disbursement of the remaining $2,000,000 will be disbursed if and whenunder the DECD Loan Agreement, as the Company achieves certain future milestones. had achieved the target employment milestone necessary to receive an additional $1,000,000 under the DECD Loan Agreement and the DECD determined to fund the remaining $1,000,000 under the DECD Loan Agreement after concluding that the required revenue target would likely have been achieved in the first quarter of 2020 in the absence of the impacts of COVID-19.
8On April 10, 2020, the Company received a stimulus check of approximately $89,000 from the U.S. Department of Health and Human Services pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
As discussed in Note 3, on May 1, 2020, the Company obtained a loan (the “PPP Loan”) from BBVA USA in the aggregate amount of $1,005,767, pursuant to the Paycheck Protection Program (the “PPP”), which was established under the CARES Act, as administered by the U.S. Small Business Administration (the “SBA”).
As discussed in Note 4, during June 2020, all of the warrants from the Company’s 2017 private placement were exercised. The Company received $5,058,608 in aggregate proceeds from the exercise of the warrants.
As discussed in Note 4, on July 20, 2020, the Company completed a private placement of Aspira common stock, par value $0.001 per share, for net proceeds of $10.6 million, after deducting expenses related to the private placement.
As discussed in Note 4, on February 8, 2021, the Company completed a public offering (the “2021 Offering”) resulting in net proceeds of approximately $47.7 million, after deducting underwriting discounts and offering expenses.
As discussed in Note 3, in March 2021, the Company applied for forgiveness of the PPP Loan, but there is no assurance that all or a portion of the PPP Loan will be forgiven.
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, 20162020 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, 20162020 included in Vermillion’sAspira’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 31, 20172021 (the “2016“2020 Annual Report”).
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The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated results.
Significant Accounting and Reporting Policies
Revenue Recognition
Product Revenue
– OVA1, OVERA and OVA1plus: The Company has adopted ASC 954-605,Health Care Entities—Revenue Recognition, as revenue from laboratory services has become significant to the Company.The Company'srecognizes product revenue in accordance with the provisions of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Product revenue is generated by performing diagnostic services using itsrecognized upon completion of the OVA1, OVERA or OVA1plus test and Overa tests, 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 payersphysician based on an accrual basis, netestimates of contractual and other adjustments, when amounts that will ultimately be realized canrealized. In determining the amount of revenue to be estimated. Untilrecognized for a contract has been negotiated with a commercial payer or governmental program, the OVA1 and Overa tests may or may not be covered by these entities' existing reimbursement policies. In addition, patients do not enter into direct agreements withdelivered test result, the Company that commit them to pay any portion ofconsiders factors such as payment history and amount, payer coverage, whether there is a reimbursement contract between 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 thatpayer and the Company, will ultimately realizeand any developments or changes that could impact reimbursement. These estimates require significant judgment by management. Some patients have out-of-pocket costs for amounts not covered by their insurance carrier, andmanagement as 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 and Overa testscollection cycle on some accounts can be 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.
See discussion of ASU No. 2014-09 (defined below) included in Recent Accounting Pronouncements below.
9long as one year.
Service Revenue
The Company’s service revenue is generated by performing IVD trial services for third-party customers. In accordance with SAB Topic 13, service revenue is recognized when the following revenue recognition criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured.
See discussion of ASU No. 2014-09 included in Recent Accounting Pronouncements below.
The Company has made no other significant changes in its critical accounting policies and estimates from those disclosed in the 2016 Annual Report.
Recent Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), Compensation - Stock Compensation (“ASU 2016-09”). The new guidance simplifies several aspects of the accounting for share-based payments, including immediate recognition of all excess tax benefits and deficiencies in the income statement, changing the threshold to qualify for equity classification up to the employees' maximum statutory tax rates, allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur, and clarifying the classification on the statement of cash flows for the excess tax benefit and employee taxes paid when an employer withholds shares for tax-withholding purposes. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016 and interim periods within that reporting period. The adoption of this standard is not expected to have a material effect on our financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which 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 in the early stages of its analysis of the effect ASU 2014-09 will have on its Service Revenue, but expects to complete its analysis during the fourth quarter of 2017.
The Company is also continuing its analysis of the effect ASU 2014-09 will have on its Product Revenue and also expects to complete this analysis in the fourth quarter of 2017. Revenue that is recognized upon the ultimate receipt of cash under the Company’s existing revenue recognition policy will have to be reassessed under the new standard. The Company’s implementation process is to reviewreviews its patient account population to determine theand determines an appropriate distribution of patient accounts by payer (i.e. (i.e., Medicare, patient pay, other third-party payer, etc.etc.) into portfolios with similar collection experienceexperience. The Company has elected this practical expedient that, when evaluated for collectability, will resultresults in a materially
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consistent revenue amount for such portfolios as if each patient account were evaluated on an individual contract basis. During the period ended March 31, 2021, there were no adjustments to estimates of variable consideration to derecognize revenue for services provided in a contract-by-contract basis.prior period. There were no impairment losses on accounts receivable recorded during the periods ended March 31, 2021 and 2020.
Genetics Revenue – Aspira GenetiX: Under ASC 606, the Company’s genetics revenue is recognized upon completion of the Aspira GenetiX test and delivery of results to the physician based on estimates of amounts that will ultimately be realized. In determining the amount of revenue to be recognized for a delivered test result, the Company considers factors such as payment history and amount, payer coverage, whether there is a reimbursement contract between the payer and the Company, and any developments or changes that could impact reimbursement. These estimates require significant judgment by management as the Company has limited experience with such factors relating to Aspira GenetiX.
Service Revenue - The Company’s service revenue was generated by performing in vitro diagnostic (“IVD”) trial services for third-party customers. Measurement of progress on contracts with customers was generally based on the input measurement of cost incurred relative to the total expected costs to satisfy the performance obligation. The Company hasdoes not yet determined ifexpect to have any significant service revenue going forward, as it plans to utilizelargely wound down performing the full retrospective or modified retrospective method of adoption, but anticipates adopting the new standardASPiRA IVD, Inc. (“ASPiRA IVD”) trial services in the firstfourth quarter of 2018.2019. During 2020, the Company’s service revenue was limited to the fulfillment of one legacy IVD contract.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This update changes the impairment model from the currently used incurred loss methodology to an expected loss methodology, which will result in the more timely recognition of losses. The ASU 2016-13 is scheduled to be effective in 2023 for smaller reporting companies. The Company is currently assessing the impact of this standard on its consolidated financial statements.
2. AGREEMENTS WITH QUEST DIAGNOSTICS INCORPORATED
In March 2015, the Company entered into a commercialreached an agreement with Quest Diagnostics, IncorporatedInc. (“Quest Diagnostics”). Pursuant to this agreement, all OVA1 U.S. testing services for Quest Diagnostics customers were transferred toVermillion’s Aspira’s wholly-owned subsidiary, ASPiRA LABS,as of August 2015. Pursuant to this agreement, as amended as of March 11, 2017,2020, Quest Diagnostics has agreedcontinued to provide blood draw and logistics support by transporting
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specimens from its clients to ASPiRA LABS for testing through at least March 11, 2018 in exchange for a market value fee. PerThe purpose of the terms2020 amendment was to extend the term of this agreement,the Testing and Services Agreement from March 11, 2019 to March 11, 2023 and for the Company will not offer to existing or futurepay an annual fee of $75,000 for the services of a part-time Quest Diagnostics customers tests that Quest Diagnostics offers.project manager.
3. COMMITMENTS AND CONTINGENCIES
Coronavirus Aid, Relief, and Economic Security (CARES) Act and PPP Loan
On May 1, 2020, the Company obtained the PPP Loan from BBVA USA in the aggregate amount of $1,005,767. The application for these funds required the Company to, in good faith, certify that the described economic uncertainty at the time made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to consider its current business activity and its ability to access other sources of liquidity sufficient to support ongoing operations in a manner that was not significantly detrimental to the business. Under the terms of the CARES Act and the PPP Loan, all or a portion of the principal amount of the PPP Loan is subject to forgiveness so long as, over the 24-week period following the Company’s receipt of the proceeds of the PPP Loan, the Company used those proceeds for payroll costs, rent, utility costs or the maintenance of employee and compensation levels. The PPP Loan, which was granted pursuant to a promissory note, matures on May 1, 2022. Any unforgiven portion of the PPP Loan bears interest at a rate of 1.000% per annum, payable monthly in equal installments commencing in August 2021. The Company applied for forgiveness of the PPP Loan in March 2021, but there is no assurance that all or a portion of the PPP Loan will be forgiven. The PPP Loan is subject to any new guidance and new requirements released by the Department of the Treasury.
Development Loan
On March 22, 2016, the Company entered into the DECD Loan Agreement, pursuant to which the Company may borrow up to $4,000,000 from the DECD. Proceeds from the $2,000,000 April 2016 initial disbursement under the Loan Agreement were utilized primarily to fund the build-out, information technology infrastructure and other costs related to the Company’s Trumbull, Connecticut facility and operations. The loan bears interest at a fixed rate of 2.0% per annum and requires equal monthly payments of principal and interest until maturity, which occurs on April 15, 2026. As security for the loan, the Company has granted the DECD a blanket security interest in the Company’s personal and intellectual property. The DECD’s security interest in the Company’s intellectual property may be subordinated to a qualified institutional lender.
The loan may be prepaid at any time without premium or penalty. An initial disbursement of $2,000,000 was made to the Company on April 15, 2016 under the DECD Loan Agreement. On December 3, 2020, the Company received a disbursement of the remaining $2,000,000 under the DECD Loan Agreement, as the Company had achieved the target employment milestone necessary to receive an additional $1,000,000 under the DECD Loan Agreement and the DECD determined to fund the remaining $1,000,000 under the DECD Loan Agreement after concluding that the required revenue target would likely have been achieved in the first quarter of 2020 in the absence of the impacts of COVID-19.
Under the terms of the DECD Loan Agreement, the Company may be eligible for forgiveness of up to $2,000,000$1,500,000 of the principal amount of the loan if the Company achieves certain job creation and retention milestones by March 1, 2018.December 31, 2022. Conversely, if the Company is either unable to meet these job creation milestones, namely, hiring 40retain 25 full-time employees with a specified average annual salary within the allotted timeframe and retaining those employees for a consecutive two-year period or does not maintain the Company’s Connecticut operations for a period of 10 years,through March 22, 2026, the DECD may require early repayment of a portion or all of the loan plus a penalty of 5%. of the total funded loan.
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Long-term debt consisted of the following:
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| March 31, |
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| December 31, |
| 2021 |
| 2020 | ||
(in thousands) |
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|
DECD loan | $ | 3,067 |
| $ | 3,116 |
PPP loan |
| 1,006 |
|
| 1,006 |
Total debt |
| 4,073 |
|
| 4,122 |
Less: Current portion |
| (645) |
|
| (645) |
Total long-term debt |
| 3,428 |
|
| 3,477 |
As of March 31, 2021, the annual amounts of future minimum principal payments due under certain of the Company’s contractual obligations are shown in the table below. Debt issuance costs for the DECD loan were $18,000. Debt related to the PPP Loan of $1,006,000 and that certain insurance promissory note of $408,000, as described below, are not included in the table below, as the PPP Loan’s forgiveness is pending a decision by the SBA as of the date of this filing, and the $408,000 insurance promissory note is cancellable.
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| Payments Due by Period | ||||||||||||||||||
(in thousands) |
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| Total |
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| 2021 |
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| 2022 |
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| 2023 |
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| 2024 |
|
| 2025 |
|
| Thereafter |
DECD Loan |
|
| 3,084 |
|
| 151 |
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| 204 |
|
| 406 |
|
| 452 |
|
| 461 |
|
| 1,410 |
Total |
| $ | 3,084 |
| $ | 151 |
| $ | 204 |
| $ | 406 |
| $ | 452 |
| $ | 461 |
| $ | 1,410 |
Insurance Notes
During 2020 and 2019, the Company entered into insurance promissory notes for the payment of insurance premiums at an interest rate of 3.88% and 4.49% respectively, with an aggregate principal amount outstanding of approximately $408,000 and $611,000 as of March 31, 2021 and December 31, 2020, respectively. The amount outstanding could be substantially offset by the cancellation of the related insurance coverage which is classified in prepaid insurance. These notes are payable in ten monthly installments with maturity dates of October 1, 2021 and October 1, 2020, respectively.
As discussed above, 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. The Company’s principal facility, including the CLIA laboratory used by ASPiRA LABS, is located in Austin, Texas, and the CLIA laboratory used byfor ASPiRA IVD services is located in Trumbull, Connecticut. TheIn October 2020, the Company renewed the Austin, Texas lease includes an aggregate annual base rent of $85,000 and annual estimated common area charges, taxes and insurance of $46,000 andfor one additional year. The Company’s renewed lease expires on January 31, 2019. 2022, with no automatic renewal or renewal option.
In October 2015, the Company entered into a lease agreement for a facility in Trumbull, Connecticut. The lease required initial payments for the buildout of leasehold improvements to the office space, which were approximately $596,000. In September 2020, the Company exercised the renewal option for its Trumbull, Connecticut lease. The term ofCompany’s renewed lease expires on June 30, 2026, with a five year renewal option. The Company is not reasonably certain that it will exercise the lease is five yearsyear renewal option beginning after the initial date of occupancy in January on July 1, 2026.
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2016 and a rent abatement period of five months. The lease includes an aggregate annual base rent of $32,000 and annual estimated common area charges, taxes and insurance of $95,000.
Building rentexpense associated with these operating leases for the three months ended September 30, 2017March 31, 2021 and 2016 totaled $66,000 and $71,000, respectively. Building rent for2020 is shown in the nine months ended September 30, 2017 and 2016 totaled $189,000 and $175,000, respectively.table below (in thousands).
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| Three Months Ended March, 31 | ||||
Lease Cost | Classification | 2021 |
| 2020 | ||
Operating rent expense |
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| Cost of revenue | $ | 19 |
| $ | 15 |
| Research and development |
| 13 |
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| 11 |
| Sales and marketing |
| 11 |
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| 6 |
| General and administrative |
| 21 |
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| 14 |
Variable rent expense |
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| Cost of revenue | $ | 1 |
| $ | 3 |
| Research and development |
| 0 |
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| 1 |
| Sales and marketing |
| 12 |
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| 11 |
| General and administrative |
| 13 |
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| 14 |
Capital LeaseBased on the Company’s leases as of March 31, 2021, the table below sets forth the approximate future lease payments related to operating leases with initial terms of one year or more (in thousands).
In April 2015, the Company leased a laboratory instrument for a total initial payment of $125,000 and ongoing payments of approximately $3,500 per month for 36 months after delivery. The agreement also requires minimum annual purchases of reagents from the manufacturer of the equipment. The laboratory instrument was placed into service on July 1, 2015.
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2021 | $ | 54 |
2022 |
| 95 |
2023 |
| 106 |
2024 |
| 116 |
2025 |
| 123 |
2026 |
| 64 |
Total Operating Lease Payments |
| 558 |
Less: Interest |
| (125) |
Present Value of Lease Liabilities | $ | 433 |
The accumulated amortization of assets under capitalWeighted-average lease obligations was $174,000term and $97,000discount rate were as of September 30, 2017 and 2016, respectively. The net book value of assets under capital lease obligations was $58,000 and $135,000 as ofSeptember 30, 2017 and 2016, respectively. follows:
Weighted-average remaining lease term (in years) | 5.2 | |
Weighted-average discount rate | 9.36% |
Non-cancelable Royalty Obligations
The Company is a party to an amended research collaboration agreement with The Johns Hopkins University School of Medicine under which the Company licenses certain of its intellectual property. directed at the discovery and validation of biomarkers in human subjects, including but not limited to clinical application of biomarkers in the understanding, diagnosis and management of human disease. Under the terms of the amended research collaboration agreement, VermillionAspira 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 monthsperiods ended September 30, 2017March 31, 2021 and 2016 totalled $30,0002020 totaled $57,000 and $24,000,$46,000, respectively. Royalty expense
Contingent Liabilities
From time to time, the Company is involved in legal proceedings and regulatory proceedings arising from operations. The Company establishes reserves for specific liabilities in connection with legal actions that management deems to be probable and estimable. The Company is not currently a party to any proceeding, the nine months ended September 30, 2017 and 2016 totalled $94,000 and $66,000, respectively.adverse outcome of which would have a material adverse effect on the Company’s financial position or results of operations.
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4. STOCKHOLDERS’ EQUITY
2017 Warrant Repricing and Exercise2020 Exercise of Warrants
In December 2014,On February 17, 2017, the Company issued certain warrants to purchase up to an aggregate of 4,166,659 2,810,338 shares of VermillionAspira common stock at an exercise price of $2.00$1.80 per share in conjunctionconnection with a December 2014February 2017 private placement of VermillionAspira common stock. The warrants expire by their original terms on December 23, 2017.were initially sold at a price of $0.125 per share of common stock underlying the warrants.
On August 31, 2017, certain holders exercised warrants to purchase 3,796,818 sharesJune 1, 2020, following the 20th consecutive trading day for which the closing price per share of VermillionAspira common stock, in consideration foras reported on the Company agreeing to reduceNasdaq stock market, exceeded the exercise price, the Company sent notice to $1.00 per share of Vermillion common stock.
The Company issued 3,796,818 shares of Vermillion common stock and received $3,796,818 in aggregate gross proceeds (approximately $3,577,000 net of transaction costs). The incremental non-cash fair value of approximately $942,000 from the modificationinvestors holding such warrants accelerating the expiration date of the warrants, was calculated usingin accordance with the Black-Scholes model and recorded as a deemed dividendterms thereof. Pursuant to the warrant holders within stockholders’ equity.terms of the warrants, any portion of the warrants not exercised prior to such accelerated expiration date would become void and of no value.
2017As of June 9, 2020, all of the warrants were exercised. The Company issued 2,810,338 shares of Aspira common stock and received $5,060,000 in aggregate proceeds from the exercise of the warrants. As of the date of the issuance of these financial statements, there are no outstanding warrants for the purchase of Aspira common stock.
2020 Private Placement
On February 17, 2017,July 20, 2020, the Company completed a private placement pursuant to which certain investors purchased 3,747,1253,150,000 shares of VermillionAspira common stock at a price of $1.40$3.50 per share. Vermillion also issued warrants to purchase shares of Vermillion common stock at a price of $0.125 per warrant share in the private placement. Net proceeds of the private placement were approximately $5,127,000 $10.6 million, after deducting offering expenses. The warrants are exercisable for 2,810,338 sharesexpenses related to the private placement of Vermillion common stock at $1.80 per share. The warrants expire on the fifth anniversary of the date of issuance or, if earlier, five business days after Vermillion delivers notice that the closing price per share of its common stock exceeded the exercise price for 20 consecutive trading days during the exercise period.
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$384,000. The sale of common stock and issuance of warrants qualified for equity treatment under GAAP.
2021 Public Offering
On February 4, 2021, the Company entered into an underwriting agreement (the “2021 Underwriting Agreement”) with William Blair & Company, L.L.C. and Truist Securities, Inc., as representatives of several underwriters (the “2021 Underwriters”), in connection with the underwritten public offering of 6,000,000 shares of Aspira common stock at a price to the public of $7.50 per share. The respective values2021 Underwriters purchased these 6,000,000 shares at the public offering price per share, less the underwriting discount of $0.4875 per share.
Under the 2021 Underwriting Agreement, the Company granted the 2021 Underwriters an option to purchase up to an additional 900,000 shares of Aspira common stock at the public offering price, less the underwriting discount of $0.4875 per share. On February 5, 2021, the 2021 Underwriters notified the Company that they were exercising this option in connection with the closing of the warrants and2021 Offering. The 2021 Offering, including the additional 900,000 shares of Aspira common stock, were calculated using their relative fair valuesclosed on February 8, 2021 and classified under common stock and additional paid-in capital. The value ascribedresulted in net proceeds to the warrants is $804,000Company of approximately $47.7 million, after deducting underwriting discounts and to the common stock is approximately $4,296,000.offering expenses.
20102019 Stock Incentive Plan
TheAt the Company’s employees, directors, and consultants are eligible to receive awards under2019 annual meeting of stockholders, the Company’s stockholders approved the Vermillion, Inc. Second Amended and Restated 20102019 Stock Incentive Plan (the “2010“2019 Plan”). The 2010purposes of the 2019 Plan permitsare (i) to align the grantinginterests of a varietythe Company’s stockholders and recipients of awards includingunder the 2019 Plan by increasing the proprietary interest of such recipients in the Company’s growth and success; (ii) to advance the interests of the Company by attracting and retaining non-employee directors, officers, other employees, consultants, independent contractors and agents; and (iii) to motivate such persons to act in the long-term best interests of the Company and its stockholders. The 2019 Plan allows the Company to grant stock options, sharestock appreciation rights, restricted stock, restricted stock units and performance awards to participants.
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Subject to the terms and conditions of the 2019 Plan, the initial number of shares restricted share units, unrestricted shares, deferred share units, performance and cash-settled awards, and dividend equivalent rights. The 2010authorized for grants under the 2019 Plan provides for issuance of up to 8,122,983is 10,492,283. To the extent an equity award granted under the 2019 Plan expires or otherwise terminates without having been exercised or paid in full, or is settled in cash, the shares of Vermillion common stock subject to adjustment as provided insuch award will become available for future grant under the 20102019 Plan.
Stock-Based Compensation
During the nine months ended September 30, 2017, the Company awarded to Vermillion’s non-employee directors 131,250 As of March 31, 2021, 10,438,081 shares of Aspira common stock were subject to outstanding stock options, and 75,988 shares of Aspira common stock were subject to unvested restricted stock awards and a total of 3,946,874 shares of Aspira common stock were reserved for issuance under the 2010 Plan having a fair value of approximately $281,000 as payment for services to be rendered in 2017. These shares of restricted stock vested 50% on June 1, 2017 and 25% on September 1, 2017, and the remaining 25% will vest on December 1, 2017. The Company also issued to certain consultants 27,878 shares of restricted stock under the 2010 Plan having a fair value of approximately $48,000.2019 Plan.
During the three months ended September 30, 2017, the Company issued to certain consultants 5,037 shares of restricted stock under the 2010 Plan having a fair value of approximately $9,000. The Company did not make any awards of restricted stock to non-employee directors during the three months ended September 30, 2017.
During the nine months ended September 30, 2017, the Company also granted certain consultants options to purchase 70,000 shares of Vermillion common stock with an exercise price of $2.14 per share. The Company also granted certain officers and employees options to purchase approximately 916,000 shares of Vermillion common stock with an exercise price of $2.14 per share. In addition,March 31, 2021, the Company granted certain officers and employees options to purchase 14,500 shares of Vermillion common stock with an exercise price of $1.83 per share. These stock options generally vest 25% on each of the four anniversaries offollowing awards under the grant date. 2019 Plan:
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Grant Date |
| Number of Shares |
| Type of Award |
| Exercise Price / Share |
| Fair Value / Share |
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1/28/2021 |
| 262,000 |
| Options |
| $ 7.79 |
| $ 4.95 |
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3/19/2021 |
| 1,971,912 |
| Options |
| $ 7.40 |
| $ 4.71 |
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3/19/2021 |
| 350,000 |
| Performance Options |
| $ 7.40 |
| $ 4.71 |
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3/19/2021 |
| 75,988 |
| Restricted Stock Units |
| $ - |
| $ - |
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| 2,659,900 |
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During the nine months ended September 30, 2017, the Company also granted certain officers and employees options to purchase 250,000 shares of Vermillion common stock with an exercise price of approximately $2.14 per share with performance-based vesting based on certain metrics through December 31, 2017. These options vest 25% on each of the four anniversaries of the grant date if the performance-based metrics are met.
During the three months ended September 30, 2017, the Company granted certain officers and employees options to purchase 22,500 shares of Vermillion common stock with an exercise price of $1.32 per share. These stock options vest 25% on each of the four anniversaries of the vesting commencement date for each such stock option.
During the three months ended September 30, 2017, the Company granted certain consultants of the Company options to purchase 120,000 shares of Vermillion common stock with an exercise price of $1.32 per share. These stock options vest in 24 equal monthly installments beginning on the vesting commencement date for each such stock option.
The allocation of employee stock-based compensation expense by functional area for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 was as follows:
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| Three Months Ended | ||||
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| March 31, | ||||
(in thousands) |
| 2021 |
| 2020 | ||
Cost of revenue |
| $ | 31 |
| $ | 23 |
Research and development |
|
| 25 |
|
| — |
Sales and marketing |
|
| 139 |
|
| 37 |
General and administrative |
|
| 190 |
|
| 201 |
Total |
| $ | 385 |
| $ | 261 |
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|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
(in thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Cost of revenue |
| $ | 21 |
| $ | 24 |
| $ | 61 |
| $ | 70 |
Research and development |
|
| — |
|
| 10 |
|
| 5 |
|
| 63 |
Sales and marketing |
|
| 38 |
|
| 10 |
|
| 108 |
|
| 66 |
General and administrative |
|
| 216 |
|
| 198 |
|
| 630 |
|
| 623 |
Total |
| $ | 275 |
| $ | 242 |
| $ | 804 |
| $ | 822 |
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5. LOSS PER SHARE
The Company calculates basic loss per share using the weighted average number of shares of VermillionAspira common stock outstanding during the period. Because the Company is in a net loss position, diluted loss per share is calculated using the weighted average number of shares of VermillionAspira common stock outstanding and excludes the effects of 7,971,86010,514,070 and 7,485,63212,543,364 potential shares of VermillionAspira common stock as of September 30, 2017March 31, 2021 and 2016,2020, respectively, that are anti-dilutive. Potential shares of VermillionAspira common stock include incremental shares of VermillionAspira common stock issuable upon the exercise of outstanding warrants, stock options and unvested restricted stock units.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995.
These statements involve a number of risks and uncertainties. Words such as “may,” “expects,” “intends,” “anticipates,” “believes,” “estimates,” “plans,” “seeks,” “could,” “should,” “continue,” “will,” “potential,” “projects” and similar expressions are intended to identify such forward-looking statements. Readers are cautioned that these forward-looking statements speak only as of the date on which this Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission (“SEC”(the “SEC”), and, except as required by law, Vermillion,Aspira Women’s Health Inc. (“Vermillion”Aspira” 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:without limitation:
· | expectations relating to the Paycheck Protection Program loan (the “PPP” Loan); |
· | projections or expectations regarding our future test volumes, revenue, cost of revenue, operating expenses, research and development expenses, gross profit margin, cash flow, results of operations and financial condition; |
· | our plan to broaden our commercial focus from ovarian cancer to differential diagnosis of women with a range of gynecological |
· | our planned business strategy and strategic business drivers and the anticipated |
· | plans |
· | plans to develop new algorithms, |
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· | intentions to address clinical questions related to early disease detection, treatment response, monitoring of disease progression, prognosis and other issues in the fields of oncology and women’s health; |
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| anticipated efficacy of our products, product development activities and product |
· | expected competition in the markets in which we compete; |
· | plans with respect to ASPiRA LABS, |
· | plans to add a genetics laboratory to our Connecticut office; |
· | expectations regarding future services provided by Quest Diagnostics |
· | plans to |
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· | expectations regarding existing and future collaborations and partnerships for our products, including |
· | plans regarding future publications; |
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· | our |
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· | our continued ability to expand and protect our intellectual property portfolio; |
· | anticipated liquidity, capital requirements and |
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· | expectations regarding raising capital and the amount of financing anticipated to be required to fund our planned operations; |
· | expectations regarding the results of our clinical utility studies and our ability to recruit patients to participate in such studies; |
· | our ability to use our net operating loss carryforwards and anticipated future tax liability under U.S. federal and state income tax legislation; |
· | expected market adoption of our diagnostic tests, including OVA1, OVERA, OVA1plus and Aspira GenetiX; |
· | expectations regarding our ability to launch new products we develop, license, co-market or acquire; |
· | expectations regarding the size of the markets for our products; |
· | expectations regarding reimbursement for our products, and our ability to obtain such reimbursement, from third-party payers such as private insurance companies and government insurance |
· | plans to use AbbVie Inc. serum samples in EndoCheck product validation studies; |
· | expectations regarding the wind down of our ASPiRA IVD, Inc. subsidiary and future service revenue; |
· | expectations in leveraging telehealth, including for the development of a process for patients to access Aspira GenetiX testing directly; |
· | expected target launch date for OVASight; |
· | Plans with respect to EndoCheck whether or not the FDA designates it a Breakthrough Device; and |
· | expectations regarding the impacts resulting from or attributable to the COVID-19 pandemic and actions taken to contain it. |
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, 2016 (our “2016 Annual Report”) and Part II, Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the three months ended March 31, 2017 (our “2017 First Quarterly Report”),2020, that could cause actual results to differ materially from those projected in such forward-looking statements due to various factors, including impacts resulting from or relating to the COVID-19 pandemic and actions taken to contain it; expectations regarding the forgiveness of the PPP Loan, anticipated use of capital and its effects; our ability to increase the volume of OVA1 or Overaour product sales; our ability to market our test through sales channels other than Quest Diagnostics including ASPiRA LABS; failures by third-party payers to reimburse OVA1 or Overafor our products and services or changes or variances into reimbursement rates; our ability to secure additional capital on acceptable termscontinue developing existing technologies and to executedevelop, protect and promote our business plan;proprietary technologies; plans to develop and perform LDTs; our ability to comply with Food and Drug Administration (“FDA”) regulations that relate to our products and to obtain any FDA clearance or approval required to develop and commercialize OVA1 and/or Overa both within and outside the United States; in the event that we succeed in commercializing OVA1 and/or Overa outside the United States, the political, economic and other conditions affecting other countries (including foreign exchange rates);medical devices; 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
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suppliers’ ability to comply with United States Food and Drug Administration (“FDA”)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; in the event that we succeed in commercializing our ability to continue to develop, protectproducts outside the United States, the political, economic 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;other conditions affecting other countries; 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; our ability to comply with FDA regulations that relate touse our products and to obtain any FDA clearance or approval required to develop and perform LDTs; ASPiRA IVD’s lack ofnet 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; ASPiRA IVD’s ability to perform its services in compliance with contractual requirements, regulatory standards and ethical considerations; andloss carryforwards; our ability to continue asuse intellectual property directed to diagnose biomarkers; our ability to successfully defend our proprietary technology against third parties; our ability to obtain licenses in the event a going concern. third party successfully asserts proprietary rights; the liquidity and trading volume of our common stock; the concentration of ownership of our common stock; our ability to retain key employees; our ability to secure additional capital on acceptable terms to execute our business plan; business interruptions; the effectiveness and availability of our information systems; our ability to integrate and achieve anticipated results from any acquisitions or strategic alliances; future litigation
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against us, including infringement of intellectual property and product liability exposure; and additional costs that may be required to make further improvements to our manufacturing operations.
Overview
Our visioncore mission is to drivetransform the advancementstate of women’s health, by providing innovative methodsglobally, starting with ovarian cancer. We aim to detect, monitoreradicate late-stage detection of ovarian cancer and manageto ensure that all our solutions will meet the treatmentneeds of both benignwomen of all ages, races, ethnicities and malignant gynecologic disease, with our primary focus being diseasesstages of the female pelvic cavity.disease. Our core patient goal is to develop a lifelong relationship with each patient, ensuring each woman has access to the best-in-class diagnostics.
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 is being deployed in three phases. The three phases are a rebuild phase, which was completed in the third quarter of 2015, a transformation phase, which is now virtually complete except for continuing expansion of payer coverage, and a market expansion and growth phase, which we began in 2017.
During the first phase, we expanded our leadership team by hiring several new senior leaders including a chief executive officer. In addition, we expanded our commercial strategy, reestablished 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 are in the process of establishing our own payer coverage for OVA1, Multivariate Index Assay (MIA), and our second-generation OVA1 test, trademarked Overa, Multivariate Index Assay, 2nd Generation (MIA2G). Overa has been launched on a targeted basis. In the third phase, we We plan to fully commercialize OVA1continue commercializing our new generation of technology and Overa by utilizing the full national licensure of ASPiRA LABS, select laboratories for distribution, 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. We initiated the targeted launch of Overa in October 2016 with two key accounts converting from OVA1 to Overa. In October 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, but also clinical risk factors, other diagnostics and patient history data in order to boost predictive value.
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.decentralized technology transfer service platform. We also intend to address clinical questions relatedraise public awareness regarding the diagnostic superiority of OVA1 as compared to early disease detection, treatment response, monitoring of disease progression, prognosis and others through collaborationscancer antigen 125 (“CA125”) for African American women with leading academic and research institutions.adnexal masses.
Our initial product,We currently market and sell the following products and related services: (1) OVA1, is an FDA cleareda 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 riskhigh-risk of having a malignant ovarian
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tumor prior to planned surgery. surgery;We have launched on a targeted basis (2) OVERA, a second-generation biomarker panel known as Overa, which is intended to maintain our product’sOVA1’s high sensitivity while improving specificity.specificity; (3) OVA1plus, a reflex offering which uses OVA1 and OVERA as a confirmation for OVA1 intermediate range results and leverages the strengths of OVA1’s Multivariate Index Assay (“MIA”) sensitivity and OVERA’s (MIA2G) specificity and as a result reduces false elevations by over 40%; (4) Aspira GenetiX, a genetic test for gynecologic cancer risk, with a core focus on female reproductive cancers, including breast, ovarian, endometrial, uterine and cervical cancers; and (5) Aspira Synergy, our new decentralized platform and cloud service technology, which we plan to house our algorithms for decentralized global access. We plan to make OVA1, OVERA, OVA1plus and Aspira GenetiX available through Aspira Synergy. Our OVA1 algorithm received FDA de novo classification in September 2009, and our OVERA algorithm received FDA 501(k) clearance for Overa in March 2016. Overa usesOVA1 and OVERA each use the Roche cobas 4000, 6000 platformand 8000 platforms for analysis of proteins. Through March 31, 2021, our product and related services revenue has been limited to revenue generated by sales of OVA1, OVA1plus and Aspira GenetiX. In 2021, we have begun to enter into decentralized arrangements with large healthcare networks and large practices for our Aspira Synergy product.
.We are developing three additional products and related services, including two diagnostic algorithms, OVASight (previously OVANex) and EndoCheck, and a high-risk diagnostic algorithm, OVAInherit, for patients with or without a pelvic mass who are genetically predisposed to ovarian cancer. These products may be launched as LDTs or FDA-cleared tests.
· | OVASight is validated to confirm risk of malignancy for women with an indeterminate mass that includes not only biomarkers, but also other clinical risk factors, and potentially other diagnostics and patient history data to increase predictive value. OVASight is our third-generation risk of malignancy for ovarian cancer test and focuses on women who present with an indeterminate mass with a very low risk of cancer. In this group, women with a low risk have the potential to be sequentially monitored to a finalized classification of low-risk or high-risk. This is intended for women who are not planned for surgery. |
· | EndoCheck, a blood test to be used in conjunction with other non-surgical modalities, will address the patient population of women who are experiencing moderate to severe pelvic pain and provide non- surgical confirmation that their symptoms are indicative of endometriosis. The goal of this test is to support an early diagnosis and direct appropriate medical management that potentially reduces the progression of disease. Current detection methods for endometriosis require surgery, a surgical biopsy and/or visualization. EndoCheck is intended to address this large patient population using a non-invasive solution with both the sensitivity and specificity equal to or greater than surgical biopsy and/or visualization. |
· | OVAInherit will be designed as a high-risk diagnostic tool, intended for those patients with or without a pelvic mass who are genetically predisposed to gynecologic cancer. It will use genetics, proteins and other modalities to assess the risk of gynecologic cancers early without visible 17 |
presence of cancer via traditional ultrasound methodologies. Our related trial, OVA360, has launched and will be focused on developing a diagnostic test for the early detection of ovarian cancer. |
In addition, we have reaffirmed the acceleration of the target launch date of OVASight to the fourth quarter of 2021. This test initially will allow physicians to assess benign pelvic masses with much better performing technology than CA125, and our next revision will allow a mass to be monitored over time. This new test will leverage its high negative predictive value to rule out ovarian cancer risk, as well as high positive predictive value to rule in the risk of ovarian cancer. We expect that the first review of this OVASight test will occur at the American Society of Clinical Oncology 2021 meeting, which is scheduled to be held virtually on June 2014, Vermillion launched 4, 2021.
We ultimately plan to commercialize each of OVA1, OVERA, OVA1plus, Aspira GenetiX, OVASight, EndoCheck and OVAInherit on a global level. We currently hold CE marks for OVA1 and OVERA. In addition, each of OVA1 and OVERA, and the reflex offering, OVA1plus, will be offered on our global testing platform, which allows both tests to be deployed worldwide.
Outside of the United States, we have studies in process to validate OVERA and OVA1 in specific populations. This includes active international distribution agreements for OVERA with Pro-Genetics LTD in Israel and MacroHealth, Inc. in the Philippines. The MacroHealth, Inc. agreement was our first agreement regarding our decentralized technology, Aspira Synergy, for OVERA specimen testing.
We own and operate Aspira Labs, Inc. (“ASPiRA LABS, a Clinical Laboratory Improvements Amendments of 1988 (“CLIA”LABS”) certified national laboratory, based in Austin, Texas, a Clinical Chemistry and Endocrinology Laboratory accredited by the College of American Pathologists, which specializes in applying biomarker-based technologies to address critical needs in the management of gynecologic cancers and disease. ASPiRA LABS provides expert diagnostic services using a state-of-the-art biomarker-based diagnostic algorithmrisk assessment to aid in clinical decision making and advance personalized treatment plans. The lab currently processes our OVA1 and OveraOVERA tests, and we plan to expand the testing to other gynecologic conditions with high unmet need. We also plan to develop and perform LDTs at ASPiRA LABS in the future.LABS. ASPiRA LABS holds a CLIAClinical Laboratory Improvements Amendments of 1988 (“CLIA”) Certificate of RegistrationAccreditation and a state laboratory license in California, Florida, Maryland, New York, Pennsylvania and Rhode Island. This allows the lab test OVA1 and OVERA to be performed on a national basis. The Centers for Medicare & Medicaid Services (“CMS”) issued a providersupplier number to ASPiRA LABS in March 2015.
Recent Developments
On May 11, 2021, the Company announced the appointment of Greg Richard as Aspira’s Head of Corporate Strategy, Reimbursement and Managed Care. Mr. Richard will be responsible for our overall corporate strategy and enhancing our blueprint for reimbursement for our current products as well as the new products and services in our robust pipeline. In addition, he will be responsible for leading our Revenue Cycle Management and supporting the Company’s strategic business development initiatives.
In February 2021, the Company announced the appointment of Nicole Sandford to Aspira’s board of directors. Ms. Sandford has extensive corporate governance and accounting experience from her 17 years at Deloitte, including most recently as the national managing partner for its Regulatory and Operational Risk practice. She currently serves as Executive Vice President and Global Board Services Leader at Ellig Group, LLC, where she advises boards and senior executives on matters related to governance.
In 2016, we created a new service within the ASPiRA channel strategy, “an ASPiRA IVD Services Program”. In April 2016,first quarter of 2021, we formed ASPiRA IVDour own internal patient advisory board, led by our Chief Spokeswoman, Dr. Diane Powis. This board includes ovarian cancer patients and survivors whose mission is to offer IVD trial services to third-party customers. ASPiRA IVD is a specialized laboratory provider dedicated to meeting the unique testing needs of IVD manufacturers seeking to commercialize high-complexity assays. ASPiRA IVD was built around a core of laboratory expertiselead how we serve and an FDA-compliant quality system, and strives to deliver accurate and reliable results to its third-party customers suitable for FDA submission. ASPiRA IVD received a CLIA laboratory license in June 2016 and commenced operationseducate patients early in the second quarter of 2016.process.
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:
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Business, Product and Coverage Developments
On May 12, 2021, the Company announced the execution an Aspira Synergy agreement with one of the largest women’s health networks whereby the OVA1plus testing will be performed in its laboratory with data interpretation by Aspira. The health network employs 300+ physicians and is responsible for 500,000 patient visits per year.
On May 12, 2021, we announced the initiation of a large prospective study with The Feinstein Institutes for Medical Research, the science arm of Northwell Health, the largest private healthcare provider in New York State. Northwell Health treats over 2 million patients annually and employs over 16,000 credentialled physicians. The study will further support longitudinal studies for the use of OVASight as a serial monitoring test for high-risk women predisposed for hereditary ovarian cancer.
The FDA’s Breakthrough Devices Program provides patients and health care providers with timely access to medical devices and device-led combination products that provide for more effective treatment or diagnosis of life-threatening or irreversibly debilitating diseases or conditions by speeding up their development, assessment and review. In the first quarter of 2021, we submitted to the FDA a Breakthrough Device designation request with respect to EndoCheck, and we have been in communications with the FDA regarding our request and [we plan?] to update the submission based on the guidance we have received thus far. There is no assurance that the FDA will grant our request for EndoCheck to be designated as a Breakthrough Device. If our device is granted a Breakthrough Device designation in the next six months, we plan to move forward with interacting with the FDA through a variety of options including sprint discussions, a request for a discussion on a data development plan, and a request for clinical protocol agreement, and any final submission will be a de novo submission. If the FDA denies our request for a Breakthrough Device designation in the next six months, we plan to proceed with a LDT.
In the first quarter of 2021, we announced that we entered into an agreement with Dana Farber Cancer Institute, Brigham and Women’s Hospital and Medical University Lodz to evaluate their jointly-developed novel microRNA technology in combination with current Aspira technologies, for the development of a highly sensitive and specific early detection test for women with a high-risk of ovarian cancer.
In the first quarter of 2021, we are continuing to increase our investment in research and development, and one of our key investments is our efforts on closing the racial and ethnic gap in women’s healthcare specific to the diagnostic accuracy of ovarian cancer detection. We have five active sites enrolled in our disparity clinical study; the most recent addition was Wayne State University in Detroit, Michigan as our first National Cancer Institute site.
In the first quarter of 2021, we submitted an abstract to the American Society for Clinical Oncology for their early June 2021 conference, and will be publishing both the analytical and clinical validation findings in the third quarter of 2021.
In the first quarter of 2021, we announced coverage by New York State Medicaid – one of the larger Medicaid populations in the U.S., covering 33% of the population in the state. This brought our total covered lives to approximately 179M or 54% of the U.S. population as of April 1, 2021.
In the first quarter of 2021, we presented at a Congressional Briefing “Advancing Health Outcomes for Women and Minorities.” We delivered a call to action for OVA1 as the standard of care for ovarian cancer risk assessment for Caucasian and non-Caucasian women and the need for funding large race and ethnicity-based trials.
COVID-19 Pandemic
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The novel coronavirus has since spread to over 100 countries, including every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19, the disease caused by the novel coronavirus, a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to the coronavirus outbreak. This outbreak has severely impacted global economic activity, and many countries and
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many states in the United States have reacted to the outbreak by instituting quarantines, mandating business and school closures and restricting travel. Patient enrollment for our planned research studies has been lower due to the impact of closures and restricted travel, which has led to delays in the completion of such studies. Our commercial efforts to enter into decentralized arrangements with large healthcare networks and supergroups have continued to move forward. However, finalization of such deals have been slowed by the pandemic. In addition, many conventions and industry conferences have been cancelled.
As a result of the COVID-19 pandemic and actions taken to contain it, the majority of our non-laboratory employees have been working remotely since March 2020, and we expect that they will continue to do so until the number of daily COVID-19 cases in the areas surrounding our offices consistently level off or declines. In terms of business continuity, our lab operations require on site essential employees. As previously disclosed, we have put in place staffing and reagent contingency plans to ensure there is no down time at our lab. We believe the lab could continue to operate in the event any isolated infection were to impact a portion of the workforce. In addition, as of the date of the filing of this Form 10-Q, we have approximately five months of reagents, one of our key testing supplies, in stock, depending on volume of tests performed, and we are working with the manufacturer to ensure a consistent supply over the next six months.
We are focusedcommitted to following recommended physical and social distancing guidelines in order to reduce the risk of infection for our employees. We have also decreased our travel and convention-related expenses. We have taken several measures to reduce the impact of the COVID-19 related closures and quarantines. For example, because our salespeople have experienced limitations on their ability to physically visit physician offices, we have implemented other means of coverage such as virtual sales representative meetings and increased digital sales and marketing. In March 2020, our sales team began making in-person calls to customers as determined on a state-by-state basis, in accordance with local guidelines. We have developed protocols and training for our team where physical visits are allowed to help ensure employee, customer and patient safety.
In the first quarter 2021, our test volume remained relatively flat compared to the fourth quarter of 2020. Given the potential for future resurgences of COVID-19 cases and the variety of federal and state actions taken to contain them, we are unable to estimate the potential future impact of the COVID-19 pandemic on our business, results of operations or cash flows as of the date of this filing.
On March 27, 2020, the U.S federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak which, among other things, provided loans, guarantees and subsidies to qualifying businesses and contained numerous income tax provisions. Some of these tax provisions are expected to be effective retroactively for years ending before the date of enactment. We do not expect these tax provisions to have a material impact on our financial statements.
On April 10, 2020, we received a stimulus check of approximately $89,000 from the U.S. Department of Health and Human Services pursuant to the CARES Act.
On May 1, 2020, we were granted the PPP Loan from BBVA USA in the aggregate amount of $1,005,767, pursuant to the PPP, which was established under the CARES Act as administered by the SBA. We believe we are using the proceeds of the PPP Loan in a manner that qualifies for complete forgiveness of the PPP Loan but caution that there can be no assurance that all or any portion of the PPP Loan will be forgiven. In March 2021, we applied for forgiveness of the PPP Loan. See “Liquidity and Capital Resources” for more information.
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Strategy
We are focused on execution of fivethe following core strategic business drivers in women’s pelvic mass assessment, starting with ovarian cancer diagnostics, and specialized laboratory services to build long-term value for our investors:
· | Expanding the distribution platform beyond the U.S. by launching |
· | Leveraging our existing database and specimen bank while building the largest specimen and data repository of gynecologic pelvic mass patients worldwide; |
· | Expanding our product offerings to additional women’s health diseases with a focus on pelvic disease conditions such as |
· | Coupling our OVA1 products with an individual’s hereditary genetic risk to refine ovarian cancer risk assessment for the high-risk populations; and |
· | Expanding distribution avenues to super groups and health systems through our |
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.
OVA1 addresses a clear clinical need, namely
We have active international distribution agreements for OVERA with Pro-Genetics LTD in Israel and MacroHealth, Inc. in the pre-surgical identification of women who are at risk of having a malignant ovarian tumor. Numerous studies have documented the benefit of referral of these women to gynecologic oncologistsPhilippines. The MacroHealth, Inc. agreement was our first agreement regarding decentralized technology transfer for their initial surgery. Prior to the clearance of OVA1, no blood test had been cleared by
18OVERA specimen testing.
In the FDAUnited States, revenue for physicians to use in the pre-surgical management of ovarian adnexal masses. OVA1 is a qualitative serum test that utilizes five well-established biomarkersdiagnostic tests comes from several sources, including third-party payers such as insurance companies, government healthcare programs, such as Medicare 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 evaluationMedicaid, client bill accounts 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 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.
patients. Novitas Solutions, thea Medicare contractor, covers and reimburses for OVA1. ThisOVA1 tests performed in certain states, including Texas. Due to OVA1 tests being performed exclusively at ASPiRA LABS in Texas, the local coverage determination from Novitas Solutions essentially provides national coverage for patients enrolled in Medicare as well as Medicare Advantage health plans. However, ASPiRA LABS initially experienced difficulty in obtaining payment from Novitas Solutionsalso bills third-party commercial and other government payers as well as client bill accounts and patients for most claims submitted due to Novitas Solutions’ administrative requirements. In October 2016, Novitas Solutions updated its administrative requirements for OVA1 reimbursement which has improved our ability to obtain reimbursement for OVA1 from Novitas Solutions.OVA1.
In October 2016, we launched our pelvic mass specimen and data repository and began the collection of Institutional Review Board patient consents for collection and cataloguing of serum samples for future research purposes.
In November 2016, The American College of Obstetricians and Gynecologists ("ACOG”)the ACOG issued Practice Bulletin Number 174 which included OVA1 as a “Multivariate Index Assay”. This bulletin outlines ACOG's “new”, outlining ACOG’s clinical management guidelines for adnexal mass management.
These new clinical management guidelines replace the July 2007 version, Practice Bulletin 83. Practice Bulletins summarize current information on techniques and clinical management issues for the practice of obstetrics and gynecology. Practice Bulletins are evidence-based documents, and recommendations are based on the evidence. This is also the only clinical management tool used for adnexal masses. Guidelines do not exist for adnexal masses, only Practice Bulletins. Guidelines do exist, however, for ovarian cancer management.
The Practice BulletinNumber 174 recommends that obstetricians and gynecologists evaluating women with adnexal masses who do not meet Level A criteria of a low risk transvaginal ultrasound should proceed with Level B clinical guidelines. Level B guidelines state that the physician may use risk assessment tools such as existing CA125 technology or OVA1 (“Multivariate Index Assay”) as listed in the bulletin. Based on this, OVA1 has now achieved parity with CA125 as a Level B clinical recommendation for the management of adnexal masses.
In December 2016, we received an FDA Clarification Letter regarding OVA1
Practice Bulletins summarize current information on techniques and Overa.clinical management issues for the practice of obstetrics and gynecology. Practice Bulletins are evidence-based documents, and recommendations are based on the evidence. This letter was in reference tois also the September 7, 2016 FDA Safety Communication advising women and their physicians against the use ofonly clinical management tool used for adnexal masses. Although there are Practice Bulletins, guidelines do not exist for adnexal masses. ACOG guidelines do exist, however, for ovarian cancer screening tests for asymptomatic women.management.
In order to avoid any confusion, as well as to document the FDA position on OVA1 and Overa, Jeffrey Shuren, M.D., J.D., Director for the Center for Devices and Radiological Health at the FDA, sent a letter to Vermillion, dated December 21, 2016. In the letter, Dr. Shuren stated:
We agree that this safety communication does not apply to Vermillion’s FDA-cleared tests, OVA1 (MIA) and Overa (MIA2G), which are not screening tests for ovarian cancer.
FDA cleared OVA1 (MIA) and Overa (MIA2G) as aids to further assess the likelihood that malignancy is present when the physician’s independent clinical and radiological evaluation does not indicate malignancy. The intended uses of the two assays are the same—to help physicians more reliably identify which patients would benefit from consultation with or referral to a gynecologic oncologist. OVA1 (MIA) and Overa (MIA2G) are indicated for women who present with an adnexal mass.
In March 2015, we 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. Pursuant to this agreement, as amended as of March 11, 2017, Quest Diagnostics has agreed to provide blood draw and logistics support by transporting specimens from its clients to ASPiRA LABS for testing through at least March 11, 2018 in exchange for a market value fee. Per the
1921
terms of this agreement, we will not offer to existing or future Quest Diagnostics customers CA 125-II or other tests that Quest Diagnostics offers.
In 2016, we continued to make progress with increased payer positive medical polices and in network agreements for a total of over 80 million covered lives.
In the first half of 2017, ASPiRA IVD services landed two top pharmaceutical trial service agreements including one enrollment study.
In July 2017October 2018, ASPiRA LABS expanded its patient advocacy program nationally to assist patients with proactive benefit checks, with over 90% resultinglaunched OVA1plus, a clinical pathway which combines the strengths of OVA1 and OVERA. This offering helps drive earlier ovarian cancer risk detection, which in OVA1 utilization.turn lowers overall healthcare costs and reduces inefficiencies in the care pathway.
Recent Publications
In September 2017,parallel to building our OVA platform offering and our commercial deployment, we have been working on several key publications and product extensions.
In March 2021, the results of an OVA1plus study were presented as a poster at the Society of Gynecologic Oncology’s 2021 Annual Meeting on Women’s Cancer (the “SGO Meeting”). The objective of the study was to determine whetpreliminary Protecting Accessher using OVERA to Medicare Actperform reflex testing on test results with a high OVA1 score can improve specificity in detection of 2014 (PAMA) price for OVA1 and Overamalignancy in women with adnexal masses, a testing process we refer to as our OVA1plus test. These results indicate that the OVA1plus test did improve specificity in detection of ovarian cancers. Although the SGO Meeting was published bycancelled due to the Center for Medicare and Medicaid Service (CMS). The preliminary OVA1 rate is basedCOVID-19 pandemic, the abstract was made available on the median of private payer payments submitted by Vermillion as part of the market-based payment reforms mandated through PAMA. SGO Meeting’s website.The Overa price was benchmarked to the only proteomic test currently on the fee schedule, which uses biomarkers and an algorithm to produce a prognostic score. The new rates, once finalized, are scheduled to become effective January 1, 2018.
In 2017, we continued to make progress with increased payer positive medical polices and in network agreements for a total of over 123 million covered lives, expected effective by February 2018.
Critical Accounting Policies and Estimates
There have been no materialOur product revenue is generated by performing diagnostic services using our OVA1, OVERA, OVA1plus or ASPiRA GenetiX tests, and the service is completed upon the delivery of the test result to the prescribing physician. The entire transaction price is allocated to the single performance obligation contained in a contract with a patient.Under ASC Topic 606, Revenue from Contracts with Customers, all revenue is recognized upon completion of the OVA1, OVERA, OVA1plus or ASPiRA GenetiX test and delivery of test results to the physician based on estimates of amounts that will ultimately be realized. In determining the amount of revenue to be recognized for a delivered test result, we consider factors such as payment history and amount, payer coverage, whether there is a reimbursement contract between the payer and us, and any developments or changes tothat could impact reimbursement. These estimates require significant judgment by management. For OVA1, OVERA and OVA1plus tests, we also review our critical accounting policiespatient account population and estimates from those discloseddetermine an appropriate distribution of patient accounts by payer (i.e., Medicare, patient pay, other third-party payer, etc.) into portfolios with similar collection experience. When evaluated for collectability, this results in Item 7 of our 2016 Annual Report.a materially consistent revenue amount for such portfolios as if each patient account were evaluated on an individual contract basis.
2022
Results of Operations - Three Months Ended September 30, 2017March 31, 2021 Compared to Three Months Ended September 30, 2016March 31, 2020
The selected summary financial and operating data of the Company for the three months ended SeptemberMarch 31, 2021 30, 2017 and 20162020 were as follows:
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| |||||||||||
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| Three Months Ended |
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|
| Three Months Ended September 30, |
| Increase (Decrease) |
| March 31, |
| Increase (Decrease) | ||||||||||||||
(dollars in thousands) |
| 2017 |
| 2016 |
| Amount |
| % |
| 2021 |
| 2020 |
| Amount |
| % | ||||||
Revenue: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
| $ | 657 |
| $ | 581 |
| $ | 76 |
| 13 |
| $ | 1,416 |
| $ | 1,185 |
| $ | 231 |
| 19 |
Genetics |
|
| 80 |
|
| 25 |
|
| 55 |
| 220 | |||||||||||
Service |
|
| 42 |
|
| 42 |
|
| - |
| - |
|
| - |
|
| 10 |
|
| (10) |
| - |
Total revenue |
|
| 699 |
|
| 623 |
|
| 76 |
| 12 |
|
| 1,496 |
|
| 1,220 |
|
| 276 |
| 23 |
Cost of revenue: |
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|
|
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|
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|
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|
|
|
|
|
Product |
|
| 495 |
|
| 461 |
|
| 34 |
| 7 |
|
| 648 |
|
| 665 |
|
| (17) |
| (3) |
Genetics |
|
| 245 |
|
| 130 |
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| 115 |
| 88 | |||||||||||
Service |
|
| 284 |
|
| 356 |
|
| (72) |
| (20) |
|
| - |
|
| 5 |
|
| (5) |
| - |
Total cost of revenue |
|
| 779 |
|
| 817 |
|
| (38) |
| (5) |
|
| 893 |
|
| 800 |
|
| 93 |
| 12 |
Gross profit |
|
| (80) |
|
| (194) |
|
| 114 |
| (59) |
|
| 603 |
|
| 420 |
|
| 183 |
| 44 |
Operating expenses: |
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Research and development |
|
| 192 |
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| 370 |
|
| (178) |
| (48) |
|
| 872 |
|
| 395 |
|
| 477 |
| 121 |
Sales and marketing |
|
| 1,050 |
|
| 1,606 |
|
| (556) |
| (35) |
|
| 3,108 |
|
| 2,115 |
|
| 993 |
| 47 |
General and administrative |
|
| 1,177 |
|
| 1,295 |
|
| (118) |
| (9) |
|
| 2,509 |
|
| 1,710 |
|
| 799 |
| 47 |
Total operating expenses |
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| 2,419 |
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| 3,271 |
|
| (852) |
| (26) |
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| 6,489 |
|
| 4,220 |
|
| 2,269 |
| 54 |
Loss from operations |
|
| (2,499) |
|
| (3,465) |
|
| 966 |
| (28) |
|
| (5,886) |
|
| (3,800) |
|
| (2,086) |
| 55 |
Interest income (expense), net |
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| (10) |
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| (11) |
|
| 1 |
| (9) | |||||||||||
Interest income, net |
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| (24) |
|
| 8 |
|
| (32) |
| 400 | |||||||||||
Other income (expense), net |
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| - |
|
| - |
|
| - |
| - |
|
| (10) |
|
| 86 |
|
| (96) |
| 112 |
Net loss |
|
| (2,509) |
|
| (3,476) |
|
| 967 |
| (28) |
| $ | (5,920) |
| $ | (3,706) |
| $ | (2,214) |
| 60 |
Product Revenue. Product revenue was $657,000$1,416,000 for the three months ended September 30, 2017March 31, 2021 compared to $581,000$1,185,000 for the same period in 2016.2020. Revenue for ASPiRA LABS is being recognized when the OVA1, OVERA, or OVA1plus test is being performed or when amounts that willcompleted based on estimates of what we expect to ultimately be realized can be estimated. All other ASPiRA LABS revenue is being recognized on a cash basis and thus recognition of revenue lags the performance of some OVA1 tests.realize. The 13%19% product revenue growthincrease is primarily due to improvementan increase in theOVA1 average unit price receivedrevenue per test compared to the same quarter in the prior year. The increase in average unit price was driven by an increase in client bill contracts, expansion of positive medical policy and contracting with payers, and improved billing and collection practices.year, as well as higher test volume.
The number of OVA1OVA1plus tests performed decreased 13%increased 3% to approximately 1,954 OVA13,775 OVA1plus tests during the three months ended September 30, 2017March 31, 2021 compared to approximately 2,257 OVA13,654 OVA1plus tests for the same period in 2016.2020. We expect revenue to continue to improve in 2021 due to: increased access to offices, patients’ return to physician visits, increased investment in our current commercial channel and new investment in our new healthcare system and Aspira Synergy commercial channels, provided that the COVID-19 pandemic does not further escalate and result in new quarantines and state closures. The volume decreaseduration of the pandemic and efforts to contain it remains uncertain.
The revenue per OVA1plus test performed increased to approximately $375 compared to $324 for the same period in 2020, an increase of 16%. This increase was primarily driven by an increase in payments by contracted payers.
Genetics Revenue.Genetics revenue was $80,000 for the three months ended March 31, 2021, compared to $25,000 for the same period in 2020. Revenue for Aspira GenetiX is recognized when the Aspira GenetiX test is completed based on estimates of what we expect to ultimately realize. The 220% genetics revenue increase is primarily due to an increase in Aspira GenetiX test volume as we continued to market this product in 2021, as well as a higher revenue per test. The revenue per test performed increased to approximately $456 compared to $230, and increase of 98%, for the previously announced loss of a client bill customersame period in July 2017, which2020. This increase was concentrated in uncovered territories (territories not coveredprimarily driven by an ASPiRA sales representative) and, to a lesser extent, the impact of hurricanesincrease in two key areas (Texas and Florida). Partially affecting the volume decrease was modest year-over-year growth in covered territories (territories coveredpayments by an ASPiRA sales representative).contracted payers. We expect the test volumerevenue to improve in 2021 due to continued commercialization investment for the fourth quarter relativeAspira GenetiX product, provided that the COVID-19 pandemic does not further escalate and
23
result in new quarantines and state closures. The duration of the pandemic and efforts to volume in the third quarter of 2017. contain it remains uncertain.
Service Revenue. Service revenue was $42,000$0 for the three months ended September 30, 2017March 31, 2021 compared to $42,000$10,000 for the same period in 2016. Service revenue will vary from quarter to quarter based on2020. Substantially all projects with ASPiRA IVD were finalized during 2019 and the size of ongoing customer projects.subsidiary’s operations were largely completed. Revenue for ASPiRA IVD is beingwas recognized once certain revenue recognition criteria hashad been met (see Note 1met. We do not expect to the financial statements included in Part I, Item I of this Form 10-Q). We expect service revenue to increase in the fourth quarter of 2017 relative to have any significant service revenue in 2021 as the third quarter of 2017 dueIVD trial services were largely wound down in 2019. However, the Company may continue to the performance of certain anticipated projects.
21have some future legacy IVD activity in 2021.
Cost of Revenue – Product. Cost of product revenue was $648,000 for the three months ended March 31, 2021 compared to $665,000 for the same period in 2020, representing a decrease of $17,000, or 3%, due primarily to decreased blood draw fees.
Cost of Revenue - Product.Genetics.Cost of productgenetics revenue, which consisted primarily of personnel costs and consulting expense after the launch of Aspira GenetiX, was $495,000$245,000 for the three months ended September 30, 2017March 31, 2021 compared to $461,000$130,000 for the same period in 2016, representing an2020. The increase of 7% due primarilyin cost represented personnel and consulting costs, as well as increase in volume as compared to some equipment maintenance costs and increased consultant fees incurredthe same period in the third quarter.2020. We expect the cost of productgenetics revenue to decrease modestlyincrease in the fourthsecond quarter of 2017 compared to the third quarter of 2017 as one-time costs incurred in the third quarter of 2017 are not expected to be repeated.2021.
Cost of Revenue - Service.Cost of service revenue was $284,000$0 for the three months ended September 30, 2017March 31, 2021 compared to $356,000$5,000 for the same period in 2016. The 20% decrease related primarily to consulting2020. These costs related to project closure support and legacy IVD contracts.
Gross Profit Margin.Gross profit margin for OVA1plus was 54.2% for the opening of the lab in the third quarter of 2016, which were not repeated in 2017. We expect the cost of service revenue to increase in the fourth quarter of 2017three months ended March 31, 2021 compared to 43.9% for the third quartersame period in 2020, an increase of 201710.3%. Overall gross profit margin was 40.3% for the three months ended March 31, 2021 compared to 34.4% for the same period in 2020, an increase of 5.9%, due primarily to expected variable costs relating to performance of certain projects. lower blood draw fees and consulting expenses.
Research and Development ExpensesExpenses.. Research and development expenses represent costs incurred to develop our technology and carry out clinical studies, and include personnel-related expenses, regulatory costs, reagents and supplies used in research and development laboratory work, infrastructure expenses, contract services and other outside costs. Research and development expenses for the three months ended September 30, 2017 decreased $178,000,March 31, 2021 increased by $477,000, or 48%121%, compared to the same period in 2016.2020. This decreaseincrease was primarily due to a reductionclinical utility and product development costs related to OVASight, our third-generation product, as well as investments in personnelbioinformatics and personnel related expenses.Aspira Synergy. We expect research and development expenses to remain consistent with third quarter 2017 levelsincrease in the fourth quarter2021, as a result of 2017.increased projects and clinical studies.
Sales and Marketing ExpensesExpenses.. 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, OVERA, OVA1plus and Overa.Aspira GenetiX. Sales and marketing expenses also include the costs of sponsoring continuing medical education, medical meeting participation, and dissemination of scientific and health economic publications. Sales and marketing expenses for the three months ended September 30, 2017 decreased $556,000,March 31, 2021 increased by $993,000, or 35%47%, compared to the same period in 2016.2020. This decreaseincrease was primarily due to a reduction in consultingincreased personnel related and marketing services andpublic relations costs, partially offset by lower health economic studytravel costs indue to the third quarter of 2017 compared to 2016.COVID-19 pandemic. We expect sales and marketing expenses to increase modestly overin 2021, due to investing in key strategic hires and product portfolio expansion, as well as the remainder of 2017 as we focus efforts oncontinued re-openings relating to the commercialization of OVA1COVID-19 pandemic, provided that the COVID-19 pandemic does not further escalate and Overa.result in new quarantines and state closures.
General and Administrative ExpensesExpenses.. General and administrative expenses consist primarily of personnel-related expenses, professional fees and other costs, including legal, finance and accounting expenses and other infrastructure expenses. General and administrative expenses for the three months ended September 30, 2017 decreased March 31, 2021 increased by $118,000, $799,000, or 9%47%, compared to the same period in 2016. The decrease2020. This increase was primarily due to a reductionan
24
increase in consulting services.legal expenses of $284,000, headcount and personnel expenses of $374,000 and board of director fees of $185,000. We expect general and administrative expenses to remain consistent with third quarter 2017 levelsincrease in the fourth quarter of 2017.2021 due to higher personnel costs.
22Net Other Income (Expense).
Results of Operations – Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
The selected summary financial and operating data of the Company Net other income (expense) for the ninethree months ended September 30, 2017 and 2016 were as follows:
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|
|
| Nine Months Ended September 30, |
| Increase (Decrease) | |||||||
(dollars in thousands) |
| 2017 |
| 2016 |
| Amount |
| % | |||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
Product |
| $ | 2,195 |
| $ | 1,640 |
| $ | 555 |
| 34 |
Service |
|
| 128 |
|
| 197 |
|
| (69) |
| (35) |
Total revenue |
|
| 2,323 |
|
| 1,837 |
|
| 486 |
| 26 |
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
Product |
|
| 1,345 |
|
| 1,516 |
|
| (171) |
| (11) |
Service |
|
| 855 |
|
| 416 |
|
| 439 |
| 106 |
Total cost of revenue |
|
| 2,200 |
|
| 1,932 |
|
| 268 |
| 14 |
Gross profit |
|
| 123 |
|
| (95) |
|
| 218 |
| (229) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 685 |
|
| 1,868 |
|
| (1,183) |
| (63) |
Sales and marketing |
|
| 3,114 |
|
| 5,514 |
|
| (2,400) |
| (44) |
General and administrative |
|
| 3,825 |
|
| 4,645 |
|
| (820) |
| (18) |
Total operating expenses |
|
| 7,624 |
|
| 12,027 |
|
| (4,403) |
| (37) |
Loss from operations |
|
| (7,501) |
|
| (12,122) |
|
| 4,621 |
| (38) |
Interest income (expense), net |
|
| (32) |
|
| (16) |
|
| (16) |
| 100 |
Other income (expense), net |
|
| (9) |
|
| 16 |
|
| (25) |
| (156) |
Net loss |
|
| (7,542) |
|
| (12,122) |
|
| 4,580 |
| (38) |
Product Revenue. Product revenue was $2,195,000 for the nine months ended September 30, 2017 compared to $1,640,000 for the same period in 2016. Revenue for ASPiRA LABS is being recognized when the OVA1 test is being performed or when amounts that will ultimately be realized can be estimated. All other ASPiRA LABS revenue is being recognized on a cash basis and thus recognition of revenue lags the performance of some OVA1 tests. The $555,000, or 34%, product revenue growth is due to improvement in the average unit price received per testMarch 31, 2021 decreased by $96,000, compared to the same period in the prior year. The increase in average unit price was driven by an increase in client bill contracts, expansion of positive medical policy and contracting with payers, and improved billing and collection practices.
The number of OVA1 tests performed decreased 3% to approximately 6,665 OVA1 tests during the nine months ended September 30, 2017 compared to approximately 6,867 OVA1 tests for the same period in 2016. The volume decrease was primarily due to the previously announced loss of a client bill customer in July 2017, which was concentrated in uncovered territories (territories not covered by an ASPiRA sales representative) and, to a lesser extent, the impact of hurricanes in two key areas (Texas and Florida).
Service Revenue. Service revenue was $128,000 for the nine months ended September 30, 2017 compared to $197,000 for the same period in 2016, a decrease of $69,000, or 35%. Service revenue will vary from quarter to quarter based on the size of ongoing customer projects. Revenue for ASPiRA IVD is being recognized once certain revenue recognition criteria has been met (see Note 1 to the financial statements included in Part I, Item I of this Form 10-Q).
Cost of Revenue - Product. Cost of product revenue was $1,345,000 for the nine months ended September 30, 2017 compared to $1,516,000 for the same period in 2016, representing a decrease of $171,000, or 11%, due to operating efficiencies compared to the prior year.
23
Cost of Revenue - Service. Cost of service revenue was $855,000 for the nine months ended September 30, 2017 compared to $416,000 for the same period in 2016. ASPiRA IVD did not commence operations until June 2016 and thus included only four months of expense compared to three full quarters of2020. Other expense in 2017.
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 through March 2016 also included costs related to activities performed under contracts with our collaborators and strategic partners. Research and development expenses for the nine months ended September 30, 2017 decreased $1,183,000, or 63%, compared to the same period in 2016. This decrease was primarily due to the expirationfirst quarter of our collaboration agreement with The Johns Hopkins University School of Medicine in March 2016 as well as lower personnel and personnel related expenses due to the clearance of Overa in March 2016.
Sales and Marketing Expenses. Our sales and marketing expenses consist2021 consisted primarily of personnel-related expenses, education and promotional expenses, and infrastructure expenses. These expenses includefranchise taxes, whereas other income in the costsfirst quarter of educating physicians, laboratory personnel and other healthcare professionals regarding OVA1 and Overa. Sales and marketing expenses also include the costs of sponsoring continuing medical education, medical meeting participation, and dissemination of scientific and health economic publications. Sales and marketing expenses for the nine months ended September 30, 2017 decreased $2,400,000, or 44%, compared to the same period in 2016. This decrease was primarily due to a reduction in personnel and personnel expenses and decreases in consulting and marketing services compared to the prior year period.
General and Administrative Expenses. General and administrative expenses consist2020 consisted primarily of personnel-related expenses, professional feesthe stimulus check received from the U.S. Department of Health and other costs, including legal, finance and accounting expenses and other infrastructure expenses. General and administrative expenses for the nine months ended September 30, 2017 decreased by $820,000, or 18%, compared to the same period in 2016. The decrease was primarily due to the reductionHuman Services of consulting services and ASPiRA IVD start-up expenses in 2016 not being repeated in 2017. approximately $89,000.
Liquidity and Capital Resources
We plan to continue to expend resources selling and marketing OVA1, OVERA, OVA1plus and Overa, operating our IVD trial services businessAspira GenetiX and developing additional diagnostic tests and service capabilities.
We have incurred significant net losses and negative cash flows from operations since inception. At September 30, 2017, we had an accumulated deficit of $393,098,000 and stockholders’ equity of $5,921,000. As of September 30, 2017, we had $7,752,000 of cash and cash equivalents and $2,229,000 of current liabilities. Working capital was $6,074,000 and $3,547,000 at September 30, 2017 and December 31, 2016, respectively.
In December 2014,On February 8, 2021, the Company issued warrantscompleted a public offering (the “2021 Offering”), resulting in net proceeds to purchase up to an aggregatethe Company of 4,166,659 shares of Vermillion common stock at an exercise price of $2.00 per share in conjunction with a December 2014 private placement of Vermillion common stock. The warrants expire by their original terms on December 23, 2017.approximately $47.7 million, after deducting underwriting discounts and offering expenses.
On August 31, 2017, certain holders exercised warrants to purchase 3,796,818 shares of Vermillion common stock in consideration for the Company agreeing to reduce the exercise price to $1.00 per share of Vermillion common stock.
The Company issued 3,796,818 shares of Vermillion common stock and received $3,796,818 in aggregate gross proceeds (approximately $3,577,000 net of transaction costs).July
On February 17, 2017, 20, 2020, the Company completed a private placement pursuant to which certain investors purchased Vermillion3,150,000 shares of Aspira common stock at a per share price of $3.50. Net proceeds of the private placement were approximately $10.6 million, after deducting underwriting discounts and warrants to purchaseoffering expenses.
In early June 2020, we issued 2,810,338 shares of VermillionAspira common stock upon the exercise of all of our outstanding warrants and received approximately $5.1 million in aggregate proceeds therefrom.
On May 1, 2020, the Company obtained the PPP Loan from BBVA USA in the aggregate amount of $1,005,767. The application for netthese funds required the Company to, in good faith, certify that the described economic uncertainty at the time made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to consider its current business activity and its ability to access other sources of liquidity sufficient to support ongoing operations in a manner that was not significantly detrimental to the business. Under the terms of the CARES Act and the PPP Loan, all or a portion of the principal amount of the PPP Loan is subject to forgiveness so long as, over the 24-week period following the Company’s receipt of the proceeds of approximately $5,127,000 after deducting offering expenses.the PPP Loan, the Company used those proceeds for payroll costs, rent, utility costs or the maintenance of employee and compensation levels. The PPP Loan, which was granted pursuant to a promissory note, matures on May 1, 2022. Any unforgiven portion of the PPP Loan bears interest at a rate of 1.000% per annum, payable monthly in equal installments commencing in August 2021. The Company applied for forgiveness of the PPP Loan in March 2021, but there is no assurance that all or a portion of the PPP Loan will be forgiven. The PPP Loan is subject to any new guidance and new requirements released by the Department of the Treasury.
In
On March 22, 2016, we entered into ana loan agreement (as amended on March 7, 2018 and April 3, 2020, the “DECD Loan Agreement”) with the State of Connecticut Department of Economic and Community Development (the “Loan Agreement”“DECD”), pursuant to which we may borrow up to $4,000,000 from the DECD. We received anThe loan bears interest at a fixed rate of 2.0% per annum and requires equal monthly payments of principal and interest until maturity, which occurs on April 15, 2026. As security for the loan, we have granted the DECD a blanket security interest in our personal and intellectual property. The DECD’s security interest in our intellectual property may be subordinated to a qualified institutional lender.
The loan may be prepaid at any time without premium or penalty. An initial disbursement of $2,000,000 inwas made to us on April 15, 2016 under thisthe DECD Loan Agreement. On December 3, 2020, the Company received a disbursement of the remaining $2,000,000 under the DECD Loan Agreement, as we achieved the target employment milestone necessary to receive an additional $1,000,000 under the DECD Loan Agreement and the DECD determined to fund the remaining $1,000,000 under the DECD Loan Agreement after concluding that the required revenue target would likely have been achieved in the first quarter of 2020 in the absence of the impacts of COVID-19.
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agreement. The remaining $2,000,000 will be disbursed if and when we achieve certain future milestones. Under the terms of the DECD Loan Agreement, the Companywe may be eligible for forgiveness of up to $2,000,000$1,500,000 of the principal amount of the loan if the Company achieveswe achieve certain job creation and retention milestones by March 1, 2018 (the “Measurement Date”).December 31, 2022. Conversely, if the Company iswe are either unable to meet these job creation milestones, namely, hiring 40retain 25 full-time employees with a specified average annual salary within the allotted timeframe and retaining those employees for a consecutive two-year period or does not maintain the Company’sour Connecticut operations for a period of 10 years,through March 22, 2026, the DECD may require early repayment of a portion or all of the loan plus a penalty of 5%. of the total funded loan. For additional information, see Note 3 of our consolidated financial statements.
The Company has incurred significant net losses and negative cash flows from operations since inception. At March 31, 2021 we had an accumulated deficit of $445,986,000 and stockholders’ equity of $52,325,000. As of March 31, 2021, we had $59,369,000 of cash and cash equivalents and $6,148,000 of current liabilities. Working capital was $55,225,000 and $12,603,000 at March 31, 2021 and December 31, 2020, respectively. There can be no assurance that we will achieve or sustain profitability or positive cash flow from operations. In addition, while we expect to grow revenue through ASPiRA LABS, there is continuingno assurance of our ability to monitor progress towards achievinggenerate substantial revenues and cash flows from ASPiRA LABS’ operations. We expect cash from our products and services to be our only material, recurring source of cash in 2021.
Net cash used in operating activities was $5,255,000 for the employment milestone noted above. See also Note 3 three months ended March 31, 2021, resulting primarily from the net loss reported of $5,920,000, which includes non-cash items such as stock compensation expense of $489,000 and depreciation and amortization of $90,000, offset by changes in accounts payable, accrued and other liabilities of $291,000, partially offset by changes in prepaid expense of $94,000 and accounts receivable of $87,000.
Net cash used in investing activities was $41,000 and $23,000 for the three months ended March 31, 2021 and 2020, respectively, which consisted of property and equipment purchases.
Net cash provided by financing activities was $48.0 million for the three months ended March 31, 2021, which resulted primarily from the February 2021 public offering, resulting in net proceeds to the financial statements includedCompany of approximately $47.7 million, after deducting underwriting discounts and offering expenses. Net cash used in Part I, Item I of this Form 10-Qfinancing activities was $47,000 for further information regarding the Loan Agreement.same period in 2020.
We expect to incur a net loss and negative cash flows from operations in 2021. The impact of the remainderCOVID-19 pandemic and actions taken to contain it on our liquidity for 2021 cannot be estimated as of 2017the date of this filing.
However, we believe that our cash and the foreseeable future. Our management believes that successful achievement ofcash equivalents will be sufficient to fund our business objectives will require additional financing. Given these conditions, there is substantial doubt about our 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 expects to raise capital through a variety of sources, which may include the exercise of common stock warrants, equity offerings, debt financing, collaborations, licensing arrangements, grants and government funding and strategic alliances. However, additional funding may not be available when needed or on terms acceptable to the Company. If the Company is unable to obtain additional capital, it may not be able to continue sales and marketing, research and development, or other operations on the scope or scale of current activity and that could have a material adverse effect on the Company’s business, results of operations and financial condition.
Net cash used in operating activities was $5,977,000 for the nine months ended September 30, 2017, resulting primarily from the net loss reported of $7,542,000 and changes in accounts payable, accrued and other liabilities of $401,000, partially offset by stock compensation expense of $997,000, depreciation and amortization of $599,000 and changes in prepaid expenses of $312,000.next twelve months.
Net cash used in operating activities was $11,199,000 for the nine months ended September 30, 2016 resulting primarily from the net loss reported of $12,122,000 and changes in accounts payable, accrued and other liabilities of $769,000, partially offset by stock compensation expense of $861,000, depreciation and amortization of $523,000 and changes in prepaid expenses of $354,000.
Net cash used in investing activities was $56,000 and $1,240,000 for the nine months ended September 30, 2017 and 2016, respectively. The higher costs in 2016 resulted from purchases of property and equipment for the ASPiRA IVD laboratory.
Net cash provided by financing activities was $8,543,000 for the nine months ended September 30, 2017, which consisted primarily of proceeds from the sale of Vermillion common stock in our February 2017 private placement, net of issuance costs, as well proceeds from the exercise of common stock warrants, net of issuance costs.
Net cash provided by financing activities of $1,877,000 for the nine months ended September 30, 2016 consisted primarily of proceeds from the DECD loan.
Our future liquidity and capital requirements will depend upon many factors, including, among others:
· | resources devoted to sales, marketing and distribution capabilities; |
· | the rate of OVA1, OVERA, OVA1plus and |
· | the rate of product adoption by healthcare systems and large physician practices of the decentralized distribution agreements for OVA1, OVERA and OVA1plus; |
· | the insurance payer community’s acceptance of and reimbursement for |
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· | our plans to acquire or invest in other products, technologies and businesses; |
· | the market price of our common |
· | the potential need to add study sites to access additional patients to maintain clinical timelines; and |
· | the impact of the COVID-19 pandemic and the actions taken to contain it, as discussed above. |
We have significant net operating loss (“NOL”) carryforwards as of September 30, 2017March 31, 2021 for which a full valuation allowance has been provided due to our history of operating losses. Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”), as well as similar state provisions may restrict our ability to use our NOL credit carryforwards due to ownership change limitations occurring in the past or that could occur in the
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future. These ownership changes may also limit the amount of NOL credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively.
Legislation commonly referred to as the Tax Cuts and Jobs Act (H.R. 1) was enacted on December 22, 2017. As a result of the Tax Cuts and Jobs Act of 2017, federal NOLs arising before January 1, 2018, and federal NOLs arising after January 1, 2018, are subject to different rules. The Company's pre- 2018 federal NOLs will expire in varying amounts from 2021 through 2037, if not utilized; and can offset 100% of future taxable income for regular tax purposes. Any federal NOLs arising after January 1, 2018, can generally be carried forward indefinitely and can offset up to 80% of future taxable income. State NOLs will expire in varying amounts from 2021 through 2037 if not utilized. The Company's ability to use its NOLs during this period will be dependent on the Company's ability to generate taxable income, and the NOLs could expire before the Company generates sufficient taxable income.
The Company believes that Section 382 ownership changes occurred as a result of the Company's follow-on public offerings in 2011, 2013, and 2015. Any limitation may result in the expiration of a portion of the net operating loss and tax credit carryforwards before utilization and any net operating loss and tax credit carryforwards that expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the Company's valuation allowance. Due to the existence of a valuation allowance, it is not expected that such limitations, if any, will have an impact on the Company's results of operations or financial position.
Off-Balance Sheet Arrangements
As of September 30, 2017,March 31, 2021, 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, the information called for by this Item 3 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 AccountingFinancial 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, 2017.March 31, 2021. Based on this evaluation, our Chief Executive Officer and Chief AccountingFinancial Officer have concluded that as of September 30, 2017,March 31, 2021, 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.
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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, 2017,March 31, 2021, 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
There have been no material changes to our risk factors from those disclosed under “Risk Factors” in Part I, Item 1A of our 20162020 Annual Report, and Part II, Item 1A of our 2017 First Quarterly Report.filed with the SEC on March 31, 2021. The risks and uncertainties described in our 20162020 Annual Report and 2017 First Quarterly 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 or results of operations.
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(a) The following exhibits are filed or incorporated by reference with this report as indicated below:
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3.1 |
| Fourth Amended and Restated Certificate of Incorporation of Vermillion, Inc. dated January 22, 2010 |
| 8-K |
| 000-31617 |
| 3.1 |
| January 25, 2010 |
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3.2 |
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| 10-Q |
| 001-34810 |
| 3.2 |
| August 14, 2014 |
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3.3 |
| Fifth Amended and Restated Bylaws of Vermillion, Inc., effective June 19, 2014
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| 10-Q |
| 001-34810 |
| 3.3 |
| August 14, 2014 |
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4.1 |
| Form of Letter Agreement, by and between Vermillion, Inc. and certain warrant holders |
| 8-K |
| 001-34810 |
| 4.1 |
| August 28, 2017 |
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3.1 |
| Fourth Amended and Restated Certificate of Incorporation of Vermillion, Inc. dated January 22, 2010 |
| 8-K |
| 000-31617 |
| 3.1 |
| January 25, 2010 |
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3.2 |
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| 10-Q |
| 001-34810 |
| 3.2 |
| August 14, 2014 |
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| 001-34810 |
| 3.1 |
| June 11, 2020 |
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3.4 |
| Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock |
| 8-K |
| 001-34810 |
| 4.1 |
| April 17, 2018 |
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3.5 |
| Amended and Restated Bylaws of Aspira Women's Health Inc., effective May 6, 2021 |
| 8-K |
| 001-34810 |
| 3.2 |
| May 10, 2021 |
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# | Management contract or compensatory plan or arrangement. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Date: |
/s/ Valerie B. Palmieri |
| Valerie B. Palmieri President and Chief Executive Officer (Duly Authorized Officer and Principal Executive Officer) |
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/s/ |
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(Duly Authorized Officer, Principal Financial Officer and Principal Accounting Officer) |
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