VERMILLION, INC., 10-Q filed on 11 Aug 17
v3.7.0.1
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2017
Jul. 31, 2017
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2017  
Document Fiscal Year Focus 2017  
Document Fiscal Period Focus Q2  
Entity Registrant Name VERMILLION, INC.  
Entity Central Index Key 0000926617  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   56,164,082
v3.7.0.1
Condensed Consolidated Balance Sheets - USD ($)
Jun. 30, 2017
Dec. 31, 2016
Current assets:    
Cash and cash equivalents $ 6,028,000 $ 5,242,000
Accounts receivable 214,000 275,000
Prepaid expenses and other current assets 269,000 498,000
Inventories 102,000 93,000
Total current assets 6,613,000 6,108,000
Property and equipment, net 1,549,000 1,911,000
Other assets 11,000  
Total assets 8,173,000 8,019,000
Current liabilities:    
Accounts payable 300,000 881,000
Accrued liabilities 1,541,000 1,464,000
Short-term debt 188,000 182,000
Other current liabilities 32,000 34,000
Total current liabilities 2,061,000 2,561,000
Non-current liabilities:    
Long-term debt 1,538,000 1,667,000
Other non-current liabilities 47,000 29,000
Total liabilities 3,646,000 4,257,000
Commitments and contingencies (Note 3)
Stockholders' equity:    
Common stock, par value $0.001 per share, 150,000,000 shares authorized at June 30, 2017 and December 31, 2016; 56,164,082 and 52,328,492 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively 56,000 52,000
Additional paid-in capital 395,060,000 389,266,000
Accumulated deficit (390,589,000) (385,556,000)
Total stockholders' equity 4,527,000 3,762,000
Total liabilities and stockholders' equity $ 8,173,000 $ 8,019,000
v3.7.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 30, 2017
Dec. 31, 2016
Condensed Consolidated Balance Sheets [Abstract]    
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 150,000,000 150,000,000
Common stock, shares issued 56,164,082 52,328,492
Common stock, shares outstanding 56,164,082 52,328,492
v3.7.0.1
Condensed Consolidated Statements Of Operations - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Revenue:        
Product $ 860 $ 554 $ 1,538 $ 1,059
Service 38 155 86 155
Total revenue 898 709 1,624 1,214
Cost of revenue:        
Product [1] 428 527 850 1,055
Service [1] 266 60 571 60
Total cost of revenue [1] 694 587 1,421 1,115
Gross profit 204 122 203 99
Operating expenses:        
Research and development [2] 268 564 493 1,498
Sales and marketing [3] 1,041 1,628 2,064 3,908
General and administrative [4] 1,241 1,691 2,648 3,350
Total operating expenses 2,550 3,883 5,205 8,756
Loss from operations (2,346) (3,761) (5,002) (8,657)
Interest income (expense), net (10) (8) (22) (5)
Other income (expense), net (4) 20 (9) 16
Net loss $ (2,360) $ (3,749) $ (5,033) $ (8,646)
Net loss per share - basic and diluted $ (0.04) $ (0.07) $ (0.09) $ (0.17)
Weighted average common shares used to compute basic and diluted net loss per common share 56,113,917 52,151,440 55,123,977 52,132,288
[1] (1) Cost of revenue$40$22$79$46
[2] (2) Research and development 2 22 5 53
[3] (3) Sales and marketing 40 14 77 56
[4] (4) General and administrative 295 319 510 445
v3.7.0.1
Condensed Consolidated Statements Of Operations (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Cost Of Revenue [Member]        
Stock-based compensation expense $ 40 $ 22 $ 79 $ 46
Research And Development [Member]        
Stock-based compensation expense 2 22 5 53
Sales And Marketing [Member]        
Stock-based compensation expense 40 14 77 56
General And Administrative [Member]        
Stock-based compensation expense $ 295 $ 319 $ 510 $ 445
v3.7.0.1
Condensed Consolidated Statements Of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Cash flows from operating activities:    
Net loss $ (5,033) $ (8,646)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 401 323
Stock-based compensation expense 671 600
Loss on sale and disposal of property and equipment 4 3
Changes in operating assets and liabilities:    
Accounts receivable 61 (156)
Prepaid expenses and other assets 218 233
Inventories (9) 7
Accounts payable, accrued liabilities and other liabilities (504) (835)
Deferred revenue   16
Net cash used in operating activities (4,191) (8,455)
Cash flows from investing activities:    
Purchase of property and equipment (43) (1,054)
Net cash used in investing activities (43) (1,054)
Cash flows from financing activities:    
Proceeds from private placement offering of common stock, net of issuance costs 5,127  
Proceeds from issuance of DECD loan, net of issuance costs   1,966
Principal repayment of DECD loan (92) (28)
Repayment of capital lease obligations (15) (14)
Proceeds from issuance of common stock from exercise of stock options   5
Net cash provided by financing activities 5,020 1,929
Net increase (decrease) in cash and cash equivalents 786 (7,580)
Cash and cash equivalents, beginning of year 5,242 18,642
Cash and cash equivalents, end of year 6,028 11,062
Supplemental disclosure of cash flow information:    
Cash paid during the period for interest $ 24 $ 10
v3.7.0.1
Organization, Basis Of Presentation And Significant Accounting And Reporting Policies
6 Months Ended
Jun. 30, 2017
Organization, Basis Of Presentation And Significant Accounting And Reporting Policies [Abstract]  
Organization, Basis Of Presentation And Significant Accounting And Reporting Policies

1.   ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING AND REPORTING POLICIES

Organization

Vermillion, Inc. (“Vermillion”; Vermillion and its wholly-owned subsidiaries are collectively referred to as the “Company,” “we” or “our) is incorporated in the state of Delaware, and is engaged in the business of developing and commercializing diagnostic tests for gynecologic disease. The Company sells OVA1™ and Overa™ risk of malignancy tests for ovarian cancer (“OVA1” and “Overa, respectively) through Vermillion’s wholly-owned Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) certified clinical laboratory, ASPiRA LABS, Inc. (“ASPiRA LABS”). The Company also offers in-vitro diagnostic (“IVD”) trial services to third-party customers through its wholly-owned subsidiary, ASPiRA IVD, Inc. (“ASPiRA IVD”), which commenced operations in June 2016. ASPiRA IVD is a specialized, CLIA certified, laboratory provider dedicated to meeting the unique testing needs of IVD manufacturers seeking to commercialize high-complexity assays.

Going Concern

The Company has incurred significant net losses and negative cash flows from operations since inception, and as a result has an accumulated deficit of approximately $390,589,000  at  June 30, 2017. The Company also expects to incur a net loss and negative cash flows from operations for the remainder of 2017. The Company’s management believes that successful achievement of the Company’s business objectives will require additional financing. Given these conditions, there is substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements have been prepared on a going concern basis and do not include any adjustments that might result from these uncertainties.

The Company 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.

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 an agreement (the “Loan Agreement”) pursuant to which it may borrow up to $4,000,000 from the State of Connecticut Department of Economic and Community Development (the “DECD”). An initial disbursement of $2,000,000 was made to the Company in April 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. 



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, 2016 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, 2016, included in Vermillion’s Annual Report on Form 10-K which was filed with the Securities and Exchange Commission on March 31, 2017 (the “2016 Annual Report”).

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated results. 



Significant Accounting and Reporting Policies



Revenue Recognition



Product Revenue



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



Estimates of amounts that the Company will ultimately realize require significant judgment by management. Some patients have out-of-pocket costs for amounts not covered by their insurance carrier, and the Company may bill the patient directly for these amounts in the form of co-payments and co-insurance in accordance with the patient’s health plan. Some payers may not cover the OVA1 and Overa tests 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 FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”) included in Recent Accounting Pronouncements below.  





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 second half of 2017.

The Company is also in the early stages of its analysis of the effect ASU 2014-09 will have on its Product Revenue and also expects to complete this analysis in the second half 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 next step in the Company’s implementation process is to review its patient account population to determine the appropriate distribution of patient accounts by payer  (i.e., Medicare, patient pay, other third-party payer, etc.) into portfolios with similar collection experience that, when evaluated for collectability, will result in a materially consistent revenue amount for such portfolios as if each patient account were evaluated on a contract-by-contract basis.

The Company has not yet determined if it plans to utilize the full retrospective or modified retrospective method of adoption, but anticipates adopting the new standard in the first quarter of 2018.



v3.7.0.1
Agreements With Quest Diagnostics Incorporated
6 Months Ended
Jun. 30, 2017
Agreements With Quest Diagnostics Incorporated [Abstract]  
Agreements With Quest Diagnostics Incorporated



2.   AGREEMENTS WITH QUEST DIAGNOSTICS INCORPORATED



In March 2015, the Company entered into a commercial agreement with Quest Diagnostics, Incorporated (“Quest Diagnostics”). Pursuant to this agreement,  all OVA1 U.S. testing services for Quest Diagnostics customers were transferred to Vermillion’s wholly-owned subsidiary, ASPiRA LABS, as of August 2015. Pursuant to this agreement, as amended as of March 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 terms of this agreement, the Company will not offer to existing or future Quest Diagnostics customers tests that Quest Diagnostics offers.

v3.7.0.1
Commitments And Contingencies
6 Months Ended
Jun. 30, 2017
Commitments And Contingencies [Abstract]  
Commitments And Contingencies

3.   COMMITMENTS AND CONTINGENCIES



Development Loan

On March 22, 2016, the Company entered into the Loan Agreement, pursuant to which the Company may borrow up to $4,000,000 from the DECD. Proceeds from the $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. Under the terms of the Loan Agreement, the Company may be eligible for forgiveness of up to $2,000,000 of the principal amount of the loan if the Company achieves certain job creation and retention milestones by March 1, 2018. Conversely, if the Company is unable to meet these job creation milestones, namely, hiring 40 full time employees with a specified average annual salary within the allotted timeframe and retaining those employees for a two-year period or does not maintain the Company’s Connecticut operations for a period of 10 years, the DECD may require early repayment of a portion or all of the loan plus a penalty of 5%. 

   

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 by ASPiRA IVD is located in Trumbull, Connecticut. 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 and expires on January 31, 2019.    

In October 2015, the Company entered a lease agreement for a facility in Trumbull, Connecticut. The lease required initial payments for the buildout of leasehold improvements to the office space, which were approximately $596,000. The term of the lease is five years beginning after the initial date of occupancy in January 2016 and a rent abatement period of five months. The lease includes an aggregate annual base rent of $32,000 and annual estimated common area charges, taxes and insurance of $95,000.  

Building rent for the three months ended June 30, 2017 and 2016 totaled $62,000 and $53,000, respectively. Building rent for the six months ended June 30, 2017 and 2016 totaled $123,000 and $104,000, respectively.



Capital Lease

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.

The accumulated amortization of assets under capital lease obligations was $155,000 and $77,000 as of June 30, 2017 and 2016, respectively. The net book value of assets under capital lease obligations was $77,000 and $155,000 as of June 30, 2017 and 2016, respectively.  



Non-cancelable Royalty Obligations

The Company is a party to an amended research collaboration agreement with The Johns Hopkins University School of Medicine under which the Company licenses certain of its intellectual property. Under the terms of the amended research collaboration agreement, Vermillion is required to pay the greater of 4% royalties on net sales of diagnostic tests using the assigned patents or annual minimum royalties of $57,500. Royalty expense for the three months ended June 30, 2017 and 2016 totalled $34,000 and $22,000, respectively. Royalty expense for the six months ended June 30, 2017 and 2016 totalled $63,000 and $42,000, respectively.

  

v3.7.0.1
Stockholders' Equity
6 Months Ended
Jun. 30, 2017
Stockholders' Equity [Abstract]  
Stockholders' Equity

4.   STOCKHOLDERS’ EQUITY

2017 Private Placement       

On February 17, 2017, the Company completed a private placement pursuant to which certain investors purchased 3,747,125 shares of Vermillion common stock at a price of $1.40 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 after deducting offering expenses. The warrants are exercisable for 2,810,338 shares of Vermillion common stock at $1.80 per share. The warrants may be exercised from time to time beginning August 17, 2017 and 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.

The sale of common stock and issuance of warrants qualified for equity treatment under GAAP. The respective values of the warrants and common stock were calculated using their relative fair values and classified under common stock and additional paid-in capital. The value ascribed to the warrants is $804,000 and to the common stock is approximately $4,296,000.



2010 Stock Incentive Plan

The Company’s employees, directors, and consultants are eligible to receive awards under the Vermillion, Inc. Second Amended and Restated 2010 Stock Incentive Plan (the “2010 Plan”). The 2010 Plan permits the granting of a variety of awards, including stock options, share appreciation rights, restricted shares, restricted share units, unrestricted shares, deferred share units, performance and cash-settled awards, and dividend equivalent rights. The 2010 Plan provides for issuance of up to 8,122,983 shares of Vermillion common stock, subject to adjustment as provided in the 2010 Plan.

Stock-Based Compensation

During the six months ended June 30, 2017, the Company awarded to Vermillion’s non-employee directors 131,250 shares of restricted stock 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 will vest 25% on each of September 1, 2017 and December 1, 2017. The Company also issued to certain consultants 22,841 shares of restricted stock under the 2010 Plan having a fair value of approximately $39,000.



During the three months ended June 30, 2017, the Company issued to certain consultants 9,213 shares of restricted stock under the 2010 Plan having a fair value of approximately $19,000. The Company did not make any awards of restricted stock to non-employee directors during the three months ended June 30, 2017



During the six months ended June 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. These stock options generally vest 25% on each of the four anniversaries of the grant date.  In addition, the Company 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 June 30, 2017, 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 vest 25% on each of the four anniversaries of the vesting commencement date for each such stock option. 



The allocation of employee stock-based compensation expense by functional area for the three and six months ended June 30, 2017 and 2016 was as follows:

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,

(in thousands)

 

2017

 

2016

 

2017

 

2016

Cost of revenue

 

$

20 

 

$

22 

 

$

40 

 

$

46 

Research and development

 

 

 

 

22 

 

 

 

 

53 

Sales and marketing

 

 

38 

 

 

14 

 

 

70 

 

 

56 

General and administrative

 

 

283 

 

 

320 

 

 

414 

 

 

425 

Total

 

$

343 

 

$

378 

 

$

529 

 

$

580 



 

 

 

 

 

 

 

 

 

 

 

 





v3.7.0.1
Loss Per Share
6 Months Ended
Jun. 30, 2017
Loss Per Share [Abstract]  
Loss Per Share

5.   LOSS PER SHARE

The Company calculates basic loss per share using the weighted average number of shares of Vermillion common stock outstanding during the period. Because the Company is in a net loss position, diluted loss per share is calculated using the weighted average number of shares of Vermillion common stock outstanding and excludes the effects of 11,662,280 and  7,808,044 potential shares of Vermillion common stock as of June 30, 2017 and 2016, respectively, that are anti-dilutive. Potential shares of Vermillion common stock include incremental shares of Vermillion common stock issuable upon the exercise of outstanding warrants, stock options and unvested restricted stock units.

v3.7.0.1
Organization, Basis Of Presentation And Significant Accounting And Reporting Policies (Policy)
6 Months Ended
Jun. 30, 2017
Organization, Basis Of Presentation And Significant Accounting And Reporting Policies [Abstract]  
Organization

Organization

Vermillion, Inc. (“Vermillion”; Vermillion and its wholly-owned subsidiaries are collectively referred to as the “Company,” “we” or “our) is incorporated in the state of Delaware, and is engaged in the business of developing and commercializing diagnostic tests for gynecologic disease. The Company sells OVA1™ and Overa™ risk of malignancy tests for ovarian cancer (“OVA1” and “Overa, respectively) through Vermillion’s wholly-owned Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) certified clinical laboratory, ASPiRA LABS, Inc. (“ASPiRA LABS”). The Company also offers in-vitro diagnostic (“IVD”) trial services to third-party customers through its wholly-owned subsidiary, ASPiRA IVD, Inc. (“ASPiRA IVD”), which commenced operations in June 2016. ASPiRA IVD is a specialized, CLIA certified, laboratory provider dedicated to meeting the unique testing needs of IVD manufacturers seeking to commercialize high-complexity assays.

Going Concern

Going Concern

The Company has incurred significant net losses and negative cash flows from operations since inception, and as a result has an accumulated deficit of approximately $390,589,000  at  June 30, 2017. The Company also expects to incur a net loss and negative cash flows from operations for the remainder of 2017. The Company’s management believes that successful achievement of the Company’s business objectives will require additional financing. Given these conditions, there is substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements have been prepared on a going concern basis and do not include any adjustments that might result from these uncertainties.

The Company 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.

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 an agreement (the “Loan Agreement”) pursuant to which it may borrow up to $4,000,000 from the State of Connecticut Department of Economic and Community Development (the “DECD”). An initial disbursement of $2,000,000 was made to the Company in April 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. 



Basis of Presentation

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, 2016 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, 2016, included in Vermillion’s Annual Report on Form 10-K which was filed with the Securities and Exchange Commission on March 31, 2017 (the “2016 Annual Report”).

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated results. 

Significant Accounting and Reporting Policies

Significant Accounting and Reporting Policies

Revenue Recognition

Revenue Recognition



Product Revenue



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



Estimates of amounts that the Company will ultimately realize require significant judgment by management. Some patients have out-of-pocket costs for amounts not covered by their insurance carrier, and the Company may bill the patient directly for these amounts in the form of co-payments and co-insurance in accordance with the patient’s health plan. Some payers may not cover the OVA1 and Overa tests 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 FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”) included in Recent Accounting Pronouncements below.  





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

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 second half of 2017.

The Company is also in the early stages of its analysis of the effect ASU 2014-09 will have on its Product Revenue and also expects to complete this analysis in the second half 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 next step in the Company’s implementation process is to review its patient account population to determine the appropriate distribution of patient accounts by payer  (i.e., Medicare, patient pay, other third-party payer, etc.) into portfolios with similar collection experience that, when evaluated for collectability, will result in a materially consistent revenue amount for such portfolios as if each patient account were evaluated on a contract-by-contract basis.

The Company has not yet determined if it plans to utilize the full retrospective or modified retrospective method of adoption, but anticipates adopting the new standard in the first quarter of 2018.



v3.7.0.1
Stockholders' Equity (Tables)
6 Months Ended
Jun. 30, 2017
Stockholders' Equity [Abstract]  
Allocation of Stock-Based Compensation Expense by Functional Area



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,

(in thousands)

 

2017

 

2016

 

2017

 

2016

Cost of revenue

 

$

20 

 

$

22 

 

$

40 

 

$

46 

Research and development

 

 

 

 

22 

 

 

 

 

53 

Sales and marketing

 

 

38 

 

 

14 

 

 

70 

 

 

56 

General and administrative

 

 

283 

 

 

320 

 

 

414 

 

 

425 

Total

 

$

343 

 

$

378 

 

$

529 

 

$

580 



 

 

 

 

 

 

 

 

 

 

 

 



v3.7.0.1
Organization, Basis Of Presentation And Significant Accounting And Reporting Policies (Details) - USD ($)
6 Months Ended
Apr. 15, 2016
Jun. 30, 2017
Jun. 30, 2016
Dec. 31, 2016
Mar. 22, 2016
Organization Consolidation And Summary Of Significant Accounting Policies [Line Items]          
Accumulated deficit   $ (390,589,000)   $ (385,556,000)  
Proceeds from issuance of private placement   $ 5,127,000      
Initial proceeds from loan     $ 1,966,000    
DECD [Member]          
Organization Consolidation And Summary Of Significant Accounting Policies [Line Items]          
Total borrowing amount         $ 4,000,000
Initial proceeds from loan $ 2,000,000        
Remaining loan amount         $ 2,000,000
v3.7.0.1
Commitments And Contingencies (Details)
1 Months Ended 3 Months Ended 6 Months Ended
Apr. 15, 2016
USD ($)
Oct. 31, 2015
USD ($)
Apr. 30, 2015
USD ($)
item
Jun. 30, 2017
USD ($)
Jun. 30, 2016
USD ($)
Jun. 30, 2017
USD ($)
employee
Jun. 30, 2016
USD ($)
Dec. 31, 2016
USD ($)
Mar. 22, 2016
USD ($)
Commitments And Contingencies [Line Items]                  
Initial proceeds from loan             $ 1,966,000    
Operating leases rental expense       $ 62,000 $ 53,000 $ 123,000 104,000    
Net book value       1,549,000   $ 1,549,000   $ 1,911,000  
Percent of royalty paid           4.00%      
Minimum royalty payment           $ 57,500      
Royalty expense       34,000 22,000 63,000 42,000    
Austin, Texas facility [Member]                  
Commitments And Contingencies [Line Items]                  
Annual base rent           85,000      
Annual estimated common area charges, taxes and insurance           $ 46,000      
Lease expiration date           Jan. 31, 2019      
Trumbull, Connecticut Facility [Member]                  
Commitments And Contingencies [Line Items]                  
Annual base rent   $ 32,000              
Annual estimated common area charges, taxes and insurance   95,000              
Leasehold improvements   $ 596,000              
Lease term           5 years      
Rent abatement period           5 months      
DECD [Member]                  
Commitments And Contingencies [Line Items]                  
Total borrowing amount                 $ 4,000,000
Fixed rate per annum                 2.00%
Maturity date           Apr. 15, 2026      
Amount eligible for forgiveness                 $ 2,000,000
Job creation, number of employees | employee           40      
Job creation, term           2 years      
Debt, maturity term           10 years      
Debt penalty           5.00%      
Initial proceeds from loan $ 2,000,000                
Remaining loan amount                 $ 2,000,000
Assets Under Capital Leases [Member]                  
Commitments And Contingencies [Line Items]                  
Number of purchased laboratory instruments | item     1            
Initial payment of laboratory equipment     $ 125,000            
Monthly payment for acquisition for equipment     $ 3,500            
Number of payments for purchase production of assets           36 months      
Accumulated amortization       155,000 77,000 $ 155,000 77,000    
Net book value       $ 77,000 $ 155,000 $ 77,000 $ 155,000    
v3.7.0.1
Stockholders' Equity (Narrative) (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2017
Feb. 17, 2017
Dec. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Common stock, shares issued 56,164,082 56,164,082 3,747,125 52,328,492
Price per share $ 0.001 $ 0.001 $ 1.40 $ 0.001
Issued a warrant to purchase common stock with a cost     $ 0.125  
Proceeds from issuance of private placement   $ 5,127,000    
Warrants outstanding to purchase shares     2,810,338  
Exercise price of warrants     $ 1.80  
Fair value of warrants issued     $ 804,000  
Common stock value $ 56,000 $ 56,000 $ 4,296,000 $ 52,000
2010 Stock Incentive Plan [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Shares available for grant 8,122,983 8,122,983    
2010 Stock Incentive Plan [Member] | Non-Employee Directors [Member] | Restricted Stock [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Restricted shares awarded 0 131,250    
Fair value of restricted shares awarded   $ 281,000    
2010 Stock Incentive Plan [Member] | Non-Employee Directors [Member] | Restricted Stock [Member] | June 1, 2016 [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Vesting percentage   50.00%    
2010 Stock Incentive Plan [Member] | Non-Employee Directors [Member] | Restricted Stock [Member] | September 1, 2016 [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Vesting percentage   25.00%    
2010 Stock Incentive Plan [Member] | Non-Employee Directors [Member] | Restricted Stock [Member] | December 1, 2017 [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Vesting percentage   25.00%    
2010 Stock Incentive Plan [Member] | Certain Consultants [Member] | Restricted Stock [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Restricted shares awarded 9,213      
Fair value of restricted shares awarded $ 19,000      
Restricted share units granted   22,841    
Fair value of restricted share units   $ 39,000    
2010 Stock Incentive Plan [Member] | Certain Consultants [Member] | $2.14 [Member] | Stock Option [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Stock options granted   70,000    
Stock options granted, average exercise price $ 2.14 $ 2.14    
2010 Stock Incentive Plan [Member] | Certain Officers And Employees [Member] | $2.14 [Member] | Stock Option [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Stock options granted   916,000    
Stock options granted, average exercise price 2.14 $ 2.14    
2010 Stock Incentive Plan [Member] | Certain Officers And Employees [Member] | $2.14 [Member] | Stock Option [Member] | Share-based Compensation Award, Tranche One [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Vesting percentage   25.00%    
2010 Stock Incentive Plan [Member] | Certain Officers And Employees [Member] | $2.14 [Member] | Stock Option [Member] | Share-based Compensation Award, Tranche One [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Vesting percentage   25.00%    
2010 Stock Incentive Plan [Member] | Certain Officers And Employees [Member] | $2.14 [Member] | Performance Shares [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Stock options granted   250,000    
Stock options granted, average exercise price $ 2.14 $ 2.14    
2010 Stock Incentive Plan [Member] | Certain Officers And Employees [Member] | $1.83 [Member] | Stock Option [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Stock options granted 14,500      
Stock options granted, average exercise price $ 1.83 $ 1.83    
2010 Stock Incentive Plan [Member] | Certain Officers And Employees [Member] | $1.83 [Member] | Stock Option [Member] | Share-based Compensation Award, Tranche One [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Vesting percentage 25.00%      
v3.7.0.1
Stockholders' Equity (Allocation of Employee Stock-Based Compensation Expense By Functional Area) (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Cost Of Revenue [Member]        
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]        
Stock-based compensation expense $ 40 $ 22 $ 79 $ 46
Research And Development [Member]        
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]        
Stock-based compensation expense 2 22 5 53
Sales And Marketing [Member]        
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]        
Stock-based compensation expense 40 14 77 56
General And Administrative [Member]        
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]        
Stock-based compensation expense 295 319 510 445
Employee Stock-Based Compensation [Member]        
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]        
Stock-based compensation expense 343 378 529 580
Employee Stock-Based Compensation [Member] | Cost Of Revenue [Member]        
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]        
Stock-based compensation expense 20 22 40 46
Employee Stock-Based Compensation [Member] | Research And Development [Member]        
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]        
Stock-based compensation expense 2 22 5 53
Employee Stock-Based Compensation [Member] | Sales And Marketing [Member]        
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]        
Stock-based compensation expense 38 14 70 56
Employee Stock-Based Compensation [Member] | General And Administrative [Member]        
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]        
Stock-based compensation expense $ 283 $ 320 $ 414 $ 425
v3.7.0.1
Loss Per Share (Details) - shares
6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Loss Per Share [Abstract]    
Antidilutive securities excluded from computation of earnings per share 11,662,280 7,808,044

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