10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

☒	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the fiscal year ended December 31, 2015.
☐	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:  001-34810 Vermillion, Inc. (Exact name of registrant as specified in its charter)
Delaware	33-0595156
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
12117 Bee Caves Road, Building Three, Suite 100
Austin, Texas	78738
(Address of Principal Executive Offices)	(Zip Code)

Registrant's telephone number, including area code: (512) 519-0400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $0.001 per share	The NASDAQ Stock Market

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐	Accelerated filer ☐
Non - accelerated filer ☐	Smaller reporting company ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 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 ☐

The aggregate market value of voting common stock held by non-affiliates of the registrant is $52,429,097

and is based upon the last sales price as quoted on The NASDAQ Capital Market as of June 30, 2015.

As of March 25, 2016, the registrant had 52,113,059 shares of common stock, par value $0.001 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information from the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders, scheduled to be held on June 23, 2016, is incorporated by reference into Part III of this report. The registrant intends to file the Proxy Statement with the Securities and Exchange Commission within 120 days of December 31, 2015.

VERMILLION, INC.

FORM 10-K

For the Fiscal Year Ended December 31, 2015

Table of Contents

Page No.

PART I			1
	ITEM 1.	Business	2
	ITEM 1A.	Risk Factors	17
	ITEM 1B.	Unresolved Staff Comments	27
	ITEM 2.	Properties	27
	ITEM 3.	Legal Proceedings	27
	ITEM 4.	Mine Safety Disclosures	27
PART II			28
	ITEM 5.	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28
	ITEM 6.	Selected Financial Data	29
	ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
	ITEM 7A.	Quantitative and Qualitative Disclosures about Market Risk	37
	ITEM 8.	Financial Statements and Supplementary Data	38
	ITEM 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	38
	ITEM 9A.	Controls and Procedures	38
	ITEM 9B.	Other Information	39
PART III			40
	ITEM 10.	Directors, Executive Officers and Corporate Governance	40
	ITEM 11.	Executive Compensation	40
	ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	40
	ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	40
	ITEM 14.	Principal Accountant Fees and Services	40
PART IV			40
	ITEM 15.	Exhibits and Financial Statement Schedules	40
SIGNATURES			20
INDEX TO EXHIBITS			21

Vermillion, OVA1 and OvaCalc are registered trademarks of Vermillion, Inc.

PART I

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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 report is filed with the Securities and Exchange Commission (the “SEC”), and, except as required by law, Vermillion, Inc. (“Vermillion” and, together with its subsidiaries the “Company”, “we”, “our” or “us”) does not assume any obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after such date. Examples of language found in forward-looking statements include the following:

· projections or expectations regarding our future revenue, cost of revenue, operating expenses, cash flow, results of operations and financial condition;

· our plan to broaden our commercial focus from ovarian cancer to differential diagnosis of women with a range of gynecological disorders;

· expected timing of the implementation of our strategy;

· plans with respect to our market expansion and growth, including plans to market OVA1 outside the United States;

· plans to develop new algorithms and molecular diagnostic tests;

· plans to establish our own payer coverage for OVA1 and Overa;

· 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;

· plans to leverage infrastructure and enhance our pipeline of future technologies by fostering relationships with in vitro diagnostic (“IVD”) companies;

· anticipated efficacy of our products, product development activities and product innovations;

· expected competition in the markets in which we compete;

· plans with respect to ASPiRA LABS, Inc. (“ASPiRA LABS”);

· expectations regarding future services provided by Quest Diagnostics Incorporated (“Quest Diagnostics”);

· plans to expand our ovarian cancer franchise beyond OVA1, including with respect to Overa and OvaX;

· plans regarding the commercialization of Overa;

· plans to develop and perform laboratory development tests (“LDTs”);

· plans with respect to product development grants;

· expectations regarding existing and future collaborations and partnerships;

· plans regarding future publications;

· our continued ability to comply with applicable governmental regulations,  expectations regarding pending regulatory submissions and plans to seek regulatory approvals for our tests outside the United States;

· our ability to obtain and maintain the regulatory approvals required to market Overa in other countries;

· our continued ability to expand and protect our intellectual property portfolio;

· anticipated liquidity and capital requirements;

· plans with respect to our financing arrangement with the State of Connecticut Department of Economic and Community Development (“DECD”)

· expected expenditures;

· our ability to use our net operating loss carryforwards;

· expected market adoption of our diagnostic tests, including OVA1;

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· expectations regarding raising capital and the amount of financing anticipated to be required to fund our planned operations; and

· our expected reimbursement for our products, and our ability to obtain such reimbursement, from third-party payers such as private insurance companies and government insurance plans.

Forward-looking statements are subject to significant risks and uncertainties, including those identified in Part I Item 1A, “Risk Factors,” that could cause actual results to differ materially from those projected in such forward-looking statements due to various factors, including our ability to increase the volume of OVA1 sales; our ability to market our test through sales channels other than Quest Diagnostics, including ASPiRA LABS; failures by third-party payers to reimburse OVA1 or changes or variances in reimbursement rates; our ability to secure additional capital on acceptable terms to execute our business plan; our ability to commercialize Overaboth within and outside the United States; in the event that we succeed in commercializing Overaoutside the United States, the political, economic and other conditions affecting other countries (including foreign exchange rates);  our ability to develop and commercialize additional diagnostic products and achieve market acceptance with respect to these products; our ability to compete successfully; our ability to obtain any regulatory approval required for our future diagnostic products; our or our suppliers’ ability to comply with Food and Drug Administration (“FDA”) requirements for production, marketing and post-market monitoring of our products; additional costs that may be required to make further improvements to our manufacturing operations; our ability to maintain sufficient or acceptable supplies of immunoassay kits from our suppliers; our ability to continue to develop, protect and promote our proprietary technologies; future litigation against us, including infringement of intellectual property and product liability exposure; our ability to retain key employees; business interruptions; legislative actions resulting in higher compliance costs; changes in healthcare policy; our ability to comply with environmental laws; our ability to generate sufficient demand for ASPiRA LABS’ services to cover its operating costs; our ability to comply with the additional laws and regulations that apply to us in connection with the operation of ASPiRA LABS;and our ability to comply with FDA regulations that relate to our products and to obtain any FDA clearance or approval required to develop and perform LDTs.

ITEM 1.          BUSINESS

Company Overview

Corporate Vision:To drivethe advancement of women’s health by providing innovative methods to detect, monitor and manage the treatment of both benign and malignant gynecologic disease,  with our primary focus being diseases of the female pelvic cavity.

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

During the first phase, we expandedour 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 plan to establish our own payer coverage for OVA1 and launch a second-generation OVA1 test, trademarked Overa (predicated on receipt of clearance from the FDA).  In the third phase we plan to commercialize Overa by utilizing the full national licensure of ASPiRA LABS, managed care coverage in select markets, our sales force and existing customer base.  Unlike OVA1, Overa uses a global testing platform, which will allow Overa to be deployed internationally.  On October 26, 2015, we announced registration of the CE mark for and clearance to market Overa in the European Union.  We also plan to develop an LDTproduct 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. On February 11, 2016, we adopted a plan to streamline our organization.  We restructured headcount and other expenses targeting an approximately 20% reduction in operating expenses in 2016, as compared to operating expenses in 2015. 

Mission Statement: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, reportableindex score that has higher diagnostic accuracythan its constituents. We concentrate our development of novel diagnostic tests forgynecologic disease, with an initial focus on ovarian cancer. We also intend to address clinical questions related to early disease detection, treatment response, monitoring of disease progression, prognosis and others through collaborations with leading academic and clinical research institutions.

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Business:Our initial product, OVA1, is a blood test designed to, in addition to a physician’s clinical assessment of a woman with a pelvic mass, identify women who are at high risk of having a malignant ovarian tumor prior to planned surgery. The FDA cleared OVA1 in September 2009, and we commercially launched OVA1 in March 2010. We have completed development and validation work on a second-generation biomarker panel known as Overa, which is intended to maintain our product’s high sensitivity while improving specificity. We submitted our510(k) clearance application to the FDA in  March2015, with the goal of commencing the marketing and sale of the technology on an early access basisin 2016.  We received FDA clearance for Overa on March 18, 2016. Overa uses the Roche cobas6000 platform.

In June 2014, Vermillion launched ASPiRA LABS, a  Clinical Laboratory Improvements Amendments of 1988 (“CLIA”) certified national laboratory based near Austin, Texas,which specializes in applying biomarker-based technologies, to address critical needs in the management of gynecologic cancersand specifically pelvic mass disease. ASPiRA LABS provides expert diagnostic services using a state-of-the-art biomarker-based diagnostic algorithm to inform clinical decision making and advance personalized treatment plans. The lab currently processes our OVA1 test,and we expect the lab to process the CA 125II and other disease specific profiles in the future in specific markets.  We plan to expand the testing provided by ASPiRA LABS to other gynecologic conditions with high unmet need.  We also plan to develop and perform LDTs at ASPiRA LABS.  ASPiRA LABS holds a CLIA Certificate of Accreditation and a state laboratory license in California,Florida, Maryland, New York, Pennsylvania and Rhode Island. This allows the lab to process OVA1 on a national basis. The Centers for Medicare and Medicaid Services (“CMS”) issued a provider number toASPiRA LABS on March 5, 2015.

In 2016, we began the creation of a new service within the ASPiRA channel strategy, “an ASPiRA Research and Partnership Program”. In this program, we plan to leverage existing infrastructure as well as enhance our pipeline of future technologies by fostering relationships with IVD companies who are developing new diagnostics including companion diagnostics platforms. We believe this will allow us to continue to be innovative in evaluating potential diagnostics as well. Our goal with the addition of this line of business is to invest in our short term and long term enterprise value while leveraging specimen bank, database, FDA experience, laboratory informatics and operating efficiency.

Strategy:We are focused on the execution of four core strategic business drivers in ovarian cancer diagnostics to build long-term value for our investors:

· Maximizing the existing OVA1 opportunity in the United States by taking the lead in payer coverage and commercialization of OVA1.  This strategy included the launch of a CLIA certified clinical laboratory, ASPiRA LABS, in June 2014;

· Improving OVA1 performance by obtainingFDA clearance of Overa, a next generation biomarker panel, while  migrating OVA1 to a global testing platform, which we believe may allow for better domestic market penetration and international expansion (FDA clearance was received on March 18, 2016);

· Building an expanded patient base by launching an ovarian cancer test(beyond Overa) to monitor patients at risk for ovarian cancer in the future; and

· Expanding our product offerings by adding additional gynecologic bio-analytic solutions involving biomarkers, other modalities (e.g., imaging), clinical risk factors and patient data to aid diagnosis and risk stratification of women presenting with a pelvic mass disease.

· We believe that these business drivers will contribute significantly to addressing unmet medical needs for women faced with gynecologic disease and other conditions and the continued development of our business.

Our Product

OVA1addresses a clear clinical need, namely the pre-surgical identification of women who are at high risk of having a malignant ovarian tumor. Numerous studies have documented the benefit of referral of these women to gynecologic oncologists for their initial surgery. Prior to the clearance of OVA1, no blood test had been cleared by the FDA for physicians to use in the pre-surgical management of ovarian adnexal masses. OVA1 is a qualitative serum test that utilizes five well-established biomarkers and proprietary software cleared as part of the OVA1 510(k) to determine the likelihood of malignancy in women over age 18, with a pelvic mass for whom surgery is planned. OVA1 should not be used without an independent clinical/radiological evaluation and is not intended to be a screening test or to determine whether a patient should proceed to surgery. Incorrect use of OVA1 carries the risk of unnecessary testing, surgery and/or 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-

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center clinical trial encompassing 27 sites reflective of the diverse nature of the clinical centers at which ovarian adnexal masses are evaluated.

We terminated our Strategic Alliance Agreement with Quest Diagnostics (the “Strategic Alliance Agreement”) in August 2013.  Prior to the termination of the Strategic Alliance Agreement, Quest Diagnostics had the right to be the exclusive clinical reference laboratory marketplace provider of OVA1 tests in its exclusive territory, which included the United States, Mexico, the United Kingdom and India.  As part of the termination, we agreed that Quest Diagnostics could continue to make OVA1 available to healthcare providers under legacy financial terms following the termination while negotiating in good faith towards an alternative business structure.  Quest Diagnostics disputed the effectiveness of such termination.

On March 11, 2015, we reached a settlement agreement with Quest Diagnostics that terminated all disputes related to the Strategic Alliance Agreement and our prior loan agreementwith Quest Diagnostics.  We also entered into a new commercial agreementwith Quest Diagnostics.  Pursuant to this agreement,  all OVA1 U.S. testing services for Quest Diagnostics customers were transferred to Vermillion’s wholly-owned subsidiary, ASPiRA LABS, as of August 10, 2015, with the exception of a nominal number of OVA1 tests distributed through Quest Diagnostics after that date. We do not expect Quest Diagnostics to distribute additional tests in the future. Quest Diagnostics is continuing to provide blood draw and logistics support by transporting specimens from its clients to ASPiRA LABS for testing through at least March 11, 2017 in exchange for a market value fee. Per the terms of the new commercial agreement, we will not offer to existing or future Quest Diagnostics customers CA125-II or other tests that Quest Diagnostics offers. 

Studies and publications

The benefit of OVA1 was established in large 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 reflecting the diverse nature of the clinical centers at which ovarian adnexal masses are evaluated. [1] The results of the clinical trial demonstrated that in a clinical cohort of 516 patients, OVA1, in conjunction with clinical evaluation, was able to identify 95.7% (154/161) of the malignant ovarian tumors overall, and to rule out malignancy with a negative predictive value (“NPV”) of 94.6%  (123/130). At the 2010 International Gynecologic Cancer Society Meeting, data was presented demonstrating the high sensitivity of OVA1 for epithelial ovarian cancers; OVA1 detected 95 out of 96 epithelial ovarian cancer cases for a sensitivity of 99.0%, including 40/41 stage I and stage II epithelial ovarian cancers. These findings resulted in an overall sensitivity of 97.6% for early stage epithelial ovarian cancers, as compared to 65.9% for the previous single-marker CA125 test using the ACOG cutoffs. The improvement in sensitivity was even greater among premenopausal women; for OVA1, sensitivity for early stage epithelial ovarian cancer in premenopausal women was 92.9% compared to CA125 with a 35.7% sensitivity. Overall, OVA1 detected 76% of malignancies missed by the CA125 assay, including all advanced stage malignancies. OVA1 is not indicated for use as a screening or stand-alone diagnostic assay.  The study results were published in Obstetrics and Gynecology in 2011.

In February 2013, results from a second pivotal clinical study of OVA1, called the “OVA500 study” led by Dr. Robert E. Bristow, Director of Gynecologic Oncology Services at  University of California Irvine Healthcare, were published in Gynecologic Oncology. The study evaluated OVA1 diagnostic performance in a population of 494 evaluable patients who underwent surgery for an ovarian adnexal mass by a non-gynecologic oncologist. Like the earlier OVA1 validation study, this was a prospective, multi-center study of consecutively enrolled, eligible subjects coordinated through 27 sites across the United States. In the OVA500 study, adnexal surgery patients were only enrolled from non-gynecologic oncology caregivers. As a result, the patient population in this study more closely resembled the intended use population for routine OVA1 testing: women aged 18 years or older, with an adnexal mass requiring surgery, but not yet referred to gynecologic oncologist, and for which the mass was determined to be benign or malignant following enrollment in the study.  

Of the 27 sites in each study, only 10 were common to both studies.  Therefore, the two studies collectively evaluated 1,024 eligible subjects at a total of 44 sites. Despite differences in population and the number of sites in the two studies, the sensitivity of OVA1 added to clinical impression (also called OVA1 dual assessment) was identical, at 95.7% (88/92). Overall prevalence of malignancy in the OVA500 study was 18.6% overall (92/494) and 11.2% (31/277) in premenopausal surgery patients. These malignancy rates  were lower than the 31.2% (161/516) found previously in the earlier OVA1 validation study. This difference is likely explained by the exclusion of subjects enrolled by gynecologic oncologists, a potentially malignancy-enriched subset of all adnexal mass surgeries. Even so, OVA1 sensitivity was 93.5% (29/31) in premenopausal subjects, with or without clinical assessment.

NPV is another critical element of OVA1 performance in the context of a presurgical triage test or referral to a gynecologic oncologist. In the OVA500 study, overall NPV of OVA1 dual assessment was 98.1% (204/208), higher than the 94.6% NPV found in the earlier validation study. In premenopausal subjects, where functional ovarian cysts are more common and gynecologists may elect to operate more frequently, the NPV of OVA1 with or without clinical assessment was 98.6%. In contrast, clinical assessment predicted just 73.9% of malignancies overall, and only 64.5% of premenopausal malignancies. Together, the differential sensitivity and high NPV of OVA1 strongly confirmed previous findings that support the clinical utility of OVA1 in the presurgical triage of patients scheduled for adnexal mass surgery.

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An important additional finding related to medical necessity was the detection of early stage malignancies, since stage I cancers are 90-95% curable if appropriately operated and treated. Of the 92 malignancies in OVA500, 35 were early stage and 28 were stage I: 38.0% and 30.4% of all malignancies, respectively. OVA1 standalone sensitivity in stratifying patients as high-risk was 91.4% (32/35) for all early stage and 89.3% (25/28) for stage I malignancies, respectively. Comparatively, CA125-II sensitivity was 65.7% (23/35) for all early stage and 64.3% (18/28) for stage I malignancies. The success rate of OVA1 classifying a benign mass as low risk, although of secondary importance (considering surgery will be performed regardless), was also measured in the OVA500 study. This statistic (specificity) was 53.5% (215/402) overall, and in premenopausal patients was 61.4% (151/246). Overall, the results strongly and independently confirmed the value of OVA1 in presurgical triage of adnexal mass patients, and sensitive identification of premenopausal and early stage malignancies.

Since many professional medical societies stress the importance of multiple independent clinical trials as so-called “evidence levels”, we also believe that the OVA500 study contributes to a higher evidence level relative to OVA1’s utility in the medical management of adnexal masses. Health economic analysis indicates that anticipated benefits of OVA1 include i) more appropriate referrals of women with high risk of malignancy to a gynecologic oncologist and fewer referrals of women at low risk of malignancy; ii) fewer second surgeries as a result of an initial surgery by a generalist on a woman with a malignant tumor; iii) reduced need for a backup surgeon (i.e. specialist) during a surgery by a generalist; iv) more appropriate and efficient administration of intraperitoneal chemotherapy; and, longer survival, associated with better quality of life.

In May 2013, theSGO issued a position statement on OVA1. This second SGO statement on OVA1 since its FDA clearance in 2009 represents another significant step toward acceptance of OVA1 as the standard of care for presurgically evaluating the risk of ovarian cancer in women with adnexal masses. The statement, titled “Multiplex Serum Testing for Women with Pelvic Mass”, reads:

“Blood levels of five proteins in women with a known ovarian mass have been reported to change when ovarian cancer is present. Tests measuring these proteins may be useful in identifying women who should be referred to a gynecologic oncologist. Recent data have suggested that such tests, along with physician clinical assessment, may improve detection rates of malignancies among women with pelvic masses planning surgery. [1],[2] Results from such tests should not be interpreted independently, nor be used in place of a physician’s clinical assessment. Physicians are strongly encouraged to reference the ACOG’s 2011 Committee Opinion “The Role of the Obstetrician-Gynecologist in the Early Detection of Epithelial Ovarian Cancer” to determine an appropriate care plan for their patients. It is important to note that no such test has been evaluated for use as, nor cleared by, the FDA as a screening tool for ovarian cancer. SGO does not formally endorse or promote any specific products or brands.”

We believe the position statement does two things:

1. Lists as references the publications of OVA1's two pivotal clinical studies, comprised of the original FDA validation study published in June 2011 and the OVA500 "intended use" study published in 2013. Together, this offers an extensive, peer-reviewed proof source for physicians and payers to assess OVA1's clinical performance and comparative medical benefits versus today's standard of care.

2. Places OVA1 use in the context of current ACOG practice guidelines, where CA125 has been used off-label for many years to predict malignancy before surgery, although with inferior performance as compared to OVA 1.

In June 2013, a study was published in Gynecologic Oncology analyzing the medical records of 13,321 women with epithelial ovarian cancer, the most common type of ovarian cancer, diagnosed from 1999 to 2006 in California [3].  Led by Dr. Robert Bristow, this study demonstrated that only 37% of these patients received treatment that adhered to care guidelines established by the NCCN, an alliance of 23 major cancer centers with expert panels that analyze, research and recommend cancer treatments. The work, although initiated separately from any Vermillion-related work, points to a continuing need for better presurgical management of patients at risk for ovarian cancer.

The study also found that surgeons who operated on 10 or more women per year for ovarian cancer, and hospitals that treated 20 or more women a year for ovarian cancer, were more likely to adhere to NCCN guidelines and their patients lived longer. Among women with advanced disease — the stage at which ovarian cancer is usually first found — 35% survived at least five years if their care met the guidelines, compared with 25% of those whose care fell short.

[1] Bristow RE, et al. 2013. Ovarian malignancy risk stratification of the adnexal mass using a multivariate index assay. Gynecol Oncol 128: 252–259.

[2] Ueland FR, et al. 2011. Effectiveness of a multivariate index assay in the preoperative assessment of ovarian tumors. Obstet Gynecol 117:1289-1297.

[3] Bristow, RE et al. 2013. Adherence to treatment guidelines for ovarian cancer as a measure of quality care. Obstet Gynecol 121:1226-1234.

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Results of thisstudy were featured on the front page of the New York Times under the headline, "Widespread Flaws Found in Ovarian Cancer Treatment." According to Dr. Bristow, principal investigator of the study, “If we could just make sure that women get to the people who are trained to take care of them, the impact would be much greater than that of any new chemotherapy drug or biological agent.” (NY Times, March 11, 2013, Denise Grady).

In November 2013, we announced that a new study of OVA1 clinical performance in the presurgical detection of ovarian cancer, entitled “Clinical Performance of a Multivariate Index Assay For Detecting Early-Stage Ovarian Cancer” was published in The American Journal of Obstetrics & Gynecology. [4] Co-authored by Dr. Robert E. Bristow (University of California Irvine Healthcare) and Dr. Frederick R. Ueland (University of Kentucky), the new analysis focused on presurgical detection of early-stage ovarian cancer among 1,016 ovarian mass surgery patients in two previous pivotal trials conducted in 2007 and 2012. The study compared OVA1 performance in early-stage ovarian cancer to commonly used cancer risk assessment protocols: overall clinical assessment, the CA125 biomarker or modified-American College of Obstetricians and Gynecologists guidelines for evaluation of suspicious pelvic masses.

In a statement regarding this new study, Dr. Bristow stated, “Early-stage ovarian cancer constitutes an important opportunity to improve survival and care for this most deadly gynecologic cancer. However, as evidenced by recent studies, most ovarian cancer patients fail to be referred to the doctors and hospitals best equipped to treat them, resulting in unfortunate consequences. Our new study demonstrates OVA1’s ability to detect the majority of all early-stage ovarian cancers prior to surgery and thereby aid in appropriately involving a gynecologic oncologist in their care. Even among premenopausal patients where primary ovarian cancer prevalence was just 15%, clinical assessment with OVA1 detected stage I ovarian cancer with almost 90% sensitivity. This is a very encouraging development for the diagnosis and treatment of ovarian cancer.”

Also in November 2013, we announced that aclinical study published in The American Journal of Obstetrics & Gynecology reported superior sensitivity of OVA1 for presurgical triage of ovarian cancer, compared with commonly used risk assessment methods.[5]The study compared OVA1 performance to benchmark triage methods, within a combined cohort of 770 ovarian mass surgery patients (including 164 malignancies) from two independent but related OVA1 pivotal trials conducted in 2007 and 2012. The study also compared the actual rate of patient referral from non-specialist physicians to gynecologic oncologists with rates predicted from clinical assessment, OVA1, CA125 or from the modified-American College of Obstetricians and Gynecologists guidelines.

Dr. Robert Bristow, lead author of the study, commented: “Despite widely endorsed treatment standards published by the National Comprehensive Cancer Network, several studies published earlier this year show that only a minority of ovarian cancer patients actually receive treatment by the doctors and hospitals best equipped to care for them. Our new publication shows that the FDA-cleared OVA1 test achieves significantly higher sensitivity than two commonly used methods. And despite lower specificity, the referral rates predicted by OVA1 were roughly comparable to actual clinical practice.”

In March 2014, we announced that a study of OVA1® clinical performance, titled "The Effect of Ovarian Imaging on the Clinical Interpretation of a Multivariate Index Assay," was released as an online advance publication of The American Journal of Obstetrics & Gynecology. The study examines the relationship between two commonly used imaging methods – ultrasound (US) and computed tomography (CT) – and the OVA1 test result, in assessing the risk of ovarian cancer among patients planning surgery for an ovarian mass. We view this study as an initial proof of concept for our planned OvaX products.

"This new study advances our understanding of how OVA1 and imaging work together in the presurgical assessment of ovarian cancer risk," said study co-author Fred Ueland, M.D., associate professor of gynecologic oncology at the University of Kentucky's Markey Cancer Center. "This is important for two reasons. First, adding OVA1 reduced the number of ovarian cancers missed with imaging alone, by 85-90%.Recent publications have reinforced that the first surgery is an important opportunity to improve ovarian cancer survival by ensuring that cancers are detected earlier and that they are operated on by the most experienced specialists. Second, this study provides new evidence of how menopausal status, imaging and OVA1 score may interrelate."

Dr. Scott Goodrich of the University of Kentucky led the study in collaboration with colleagues Drs. Fred Ueland and Rachel Ware Miller. The authors compared the performance of each imaging method alone, to the performance of OVA1 alone (for risk stratification), as well as in combination with OVA1. In addition, the authors presented logistic regression models showing how menopausal status, high- or low-risk imaging and OVA1 score interact in the assessment of ovarian cancer risk. The researchers concluded that "serum biomarkers and imaging are a complementary set of clinical tools and that when the OVA1 score is further stratified by imaging risk and menopausal status, there is a better understanding of the clinical risk of ovarian malignancy."

[4] Longoria TC, et al. 2013. Clinical performance of a multivariate index assay for detecting early-stage ovarian cancer. Am J Obstet Gynecol Jan;210(1):78.e1-9.

[5] Bristow, RE, et al. 2013. Impact of a multivariate index assay on referral patterns for surgical management of an adnexal mass. Am J Obstet Gynecol Dec;209(6):581.e1-8.

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In May 2014, we announced a Vermillion-funded study with Moffitt Cancer Center in Tampa, Florida. The purpose of the study is to produce clinical and economic data to support a new value-based practice model that may improve survival, quality of life and cost-effectiveness of care for patients with ovarian cancer. It features two phases.The first phase was retrospective, and benchmarked the care standards and variances provided to patients with ovarian, fallopian tube and/or primary peritoneal cancer. The second phase modeled improvements in care quality and cost that may be afforded by creating a standardized triage algorithm employing different FDA-cleared or prototype multi-marker blood tests, along with established clinical diagnostic or prognostic factors such as pelvic exams and ultrasound imaging.

We expect to complete our collaboration with Moffitt Cancer Center (“MCC”) in 2016.  We expect MCC to issue two or three “market development” publications in connection with this collaboration, which shouldoffer real-world evidence of opportunities for improvement in pre-surgical management of patients eventually referred to a NCCN (National Comprehensive Cancer Network) center with ovarian cancer. One of these studies appeared as a poster presentation at the Annual Meeting of SGO (the Society for Gynecologic Oncology) on March 20-21, 2016. The poster, titled “Inbound referral patterns for ovarian cancer patients at a National Comprehensive Cancer Center (NCCN) institution”, evaluated the highly varying paths experienced by 345 women which led to eventual diagnosis and referral to Moffitt. Evidence of delays, surgery by non-specialists, and significant impact on survival was found among these patients, supporting Vermillion’s contention that better pre-surgical referral is relevant to high-volume cancer care; not just under-served market segments.

On March 27, 2015, we announced initial results from a cost-effectiveness analysis study which was presented in a poster at the Annual Meeting of the American College of Medical Quality in Alexandria, Virginia. The study was co-authored by Dr. Robert E. Bristow and Dr. Gareth K. Forde, clinicians at the University of California at Irvine, and Dr. John Hornberger, a leading health economist at Stanford University School of Medicine. The new study, entitled: “Cost Effectiveness Analysis of a Multivariate Index Assay compared to Modified ACOG Criteria and CA-125 in the Triage of Women with Adnexal Masses”, compared the cost-effectiveness of triaging ovarian masses using OVA1 versus two important clinical benchmarks: the CA-125 biomarker and the modified ACOG (American College of Obstetricians and Gynecologists) guideline for ovarian cancer risk assessment (“mod-ACOG”).

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

· Use of OVA1 resulted in fewer projected re-operations and pre-treatment CT scans versus CA 125-II or mod-ACOG,

· OVA1 was QALY-increasing and cost-effective relative to CA 125-II or mod-ACOG,

· ICERs of $12,189/QALY and $35,094/QALY were calculated for OVA1 versus CA 125-II and mod-ACOG, respectively; resulting in a “cost-effective” outcome based on the $50,000 threshold, and

· Relative to the best-practice mod-ACOG benchmark, OVA1 projected an annual increase in patient survival and QALY in excess of 1,000 years, when the surgical cohort was projected to national annual adnexal mass surgeries including about 22,000 new cases of ovarian cancer.

In April 2015, we announced the initiation of a strategiccollaborationwith Kaiser Permanente's Southern California Permanente Medical Group (“SCPMG”).  Vermillion continues in the second year of this strategic collaboration in order to enhance the diagnosis and treatment of ovarian cancer. The ultimate goal of this collaboration is to create a "best practice" for identification and "first time right" treatment of patients with ovarian cancer. Once data collection from the first phase of this relationship focused on retrospective benchmarking of ovarian cancer care within the SCPMG system is complete,  we expect findings to be submitted for publication. Future phases, which will depend on phase 1 findings, may assess the potential value of OVA1 or Overa, to better inform ovarian cancer referral and patient management within an integrated care setting. Vermillion’s goal is to optimize the on-label testing protocol to SCPMG’s practice requirements and quality metrics, thereby obtaining evidence for broader application.

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

The abstracts represent the first publication of data from the development of the next generation of OVA1, which we call Overa. The data show significant improvement in Overa specificity compared to OVA1, while maintaining strong sensitivity (92% for OVA1 in a 2013 study). We received FDA clearance for Overa on March 18, 2016 and our goal is to launch Overa on an early access basis in 2016.

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Highlights of the abstracts are as follows:

+
Validation Study† (N=493)	OVA1	Overa (MIA2G)	Variance	% Variance
Sensitivity	n.s. (not significantly different)
Specificity	53.6%	69.1%	+15.5%*	+28.9%
Positive predictive value	31.4%	40.4%	+9.0%*	+28.7%
Negative predictive value	n.s. (not significantly different)
False positive rate	46.4%	30.9%	(15.5%)*	(33.4%)
Overall clinical accuracy†	60.9%	73.2%	+12.3%	+20.2%

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

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

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

On March 22, 2016, we entered into an agreement pursuant to which we may borrow up to $4,000,000 from the State of Connecticut Department of Economic and Community Development (“DECD”).  Proceeds from the loan are to be utilized primarily to fund the build-out, information technology infrastructure and other costs related to our Trumbull, Connecticut facility and operations.  The loan bears interest at a fixed rate of 2.0% per annum and requires equal monthly payments of principal and interest until maturity, which is 10 years from the initial funding date.  As security for the loan, we have granted the DECD a blanket security interest in our personal and intellectual property.  The DECD’s security interest in our intellectual property may be subordinated to a qualified institutional lender.  Under the terms of the agreement, we may be eligible for forgiveness of up to $2,000,000 of the principal amount of the loan if we achieve certain job creation and retention milestones measured by March 1, 2018.  If we are unable to meet these job creation milestones within the allotted timeframe or do not maintain our Connecticut operations for a period of 10 years, the DECD may require early repayment of a portion or all of the loan depending on job attainment as compared to the required amount.

Under the agreement, an initial disbursement of $2,000,000 will be made to us after final State of Connecticut approval and satisfaction of customary closing conditions.  The remaining $2,000,000 will be advanced if and when we achieve certain future milestones.

Current and former academic and research institutions that we have or have had collaborations with include the Johns Hopkins University School of Medicine (“JHU”); the University of Texas M.D. Anderson Cancer Center (“M.D. Anderson”); University College London (“UCL”); the University of Texas Medical Branch (“UTMB”); the Katholieke Universiteit Leuven; Clinic of Gynecology and Clinic of Oncology, Rigshospitalet, Copenhagen University Hospital (“Rigshospitalet”); the Ohio State University Office of Sponsored Programs(“OSU”); Stanford; the University of Kentucky (“UK”),UC Irvine and Southern California Permanente Medical Group (“SCPMG”).  

The Diagnostic Market

The economics of healthcare demand effective and efficient allocation of resources which can be accomplished through disease prevention, early detection of disease leading to early intervention, and diagnostic tools that can triage patients to more appropriate therapy and intervention. Allied Market Research, a market research and business consulting partnership, expects that IVD market revenue will reach $74 billion by 2020. We have chosen to concentrate our business focus in the areas of oncology and women’s health where we have established strong key opinion leaders, and provider and patient relationships. Demographic trends suggest that, as the population ages, the burden from gynecologic diseases, including cancers,will increase and the demand for quality diagnostic, prognostic and predictive tests will escalate. In addition, the areasof oncology and women’s health generally lack quality diagnostic tests and, therefore, we believe patient outcomes can be significantly improved by the development of novel diagnostic tests.

Our focus on translational biomarkersand informatics enables us to address the market for novel diagnostic tests that simultaneously measure multiple biomarkers. A biomarker is a biomolecule or variant biomolecule that is present at measurably greater or lesser concentrations in a disease state versus a normal condition. Conventional protein tests measure a single protein biomarker whereas most diseases are complex. We believe that efforts to diagnose cancer and other complex diseases have failed in large part because the disease is heterogeneous at the causative level (i.e., most diseases can be traced to multiple potential etiologies) and at the human response level (i.e., each individual afflicted with a given disease can respond to that ailment in a specific manner).

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Consequently, measuring a single biomarker when multiple biomarkers may be altered in a complex disease is unlikely to provide meaningful information about the disease state. We believe that our approach of monitoring and combining multiple protein biomarkers using a variety of analytical techniques has allowed and will continue to allow us to create diagnostic tests with sufficient sensitivity and specificity about the disease state to aid the physician considering treatment options for patients with complex diseases. Such assays are commonly referred to as IVDMIA (also known as In Vitro Diagnostic Multivariate Index Assays),and often utilize advanced algorithms based on logistic regression, pattern recognition and the like. Often, IVDMIA algorithms are non-intuitive, and therefore require rigorous clinical validation and error modeling. Vermillion and its collaborators are expert in these areas, and in the case of OVA1, presented both the clinical validation and error modeling needed in order to gain 510(k) clearance of OVA1 as an IVD software device.

Ovarian Cancer

Background

Commonly known as the “silent killer,” ovarian cancer leads to over 14,000 deaths each year in the United States. As of early 2016, The American Cancer Society (“ACS”) estimated that over22,000 new ovarian cancer cases will be diagnosed, with the majority of patients diagnosed in the late stages of the disease in which the cancer has spread beyond the ovary. Unfortunately, ovarian cancer patients in the late stages of the disease have a poor prognosis, which leads to high mortality rates. According to the ACS, when ovarian cancer is diagnosed at its earliest stage, the patient has a 5-year survival rate of 92%. Ovarian cancer patients have up to a 90% cure rate following surgery and/or chemotherapy if detected in stage 1. However, only 15% of ovarian cancer patients are diagnosed before the tumor has spread outside the ovary. For ovarian cancer patients diagnosed in the late-stages of the disease, the 5-year survival rate falls to as low as 17%.

While the diagnosis of ovarian cancer in its earliest stages greatly increases the likelihood of survival from the disease, another factor that predicts survival from ovarian cancer is the specialized training of the surgeon who operates on the ovarian cancer patient. Numerous studies have demonstrated that treatment of malignant ovarian tumors by specialists such as gynecologic oncologists or at specialist medical centers improves outcomes for women with these tumors. Published guidelines from the SGO and the ACOGrecommend referral of women with malignant ovarian tumors to specialists. Unfortunately, we believe only about one-third of women with these types of tumors are operated on by specialists, in part because of inadequate diagnostics that can identify such malignancies with high sensitivity. Accordingly, there is a clinical need for a diagnostic test that can provide adequate predictive value to stratify patients with a pelvic mass into those with a high risk of invasive ovarian cancer versus those with a low risk of ovarian cancer, which is essential for improving overall survival in patients with ovarian cancer.

Although adnexal masses are relatively common, malignant tumors are less so. Screening studies have indicated that the prevalence of adnexal masses in postmenopausal women can be as high as 5%.  Adnexal masses are thought to be even more common in premenopausal women, but there are more non-persistent, physiologic ovarian masses in this demographic group.  In aprostate, lung, colorectal and ovarian cancer study, 28,519 post-menopausal women were screened for ovarian malignancy and 4.7% received an abnormal ultrasound.  According to 2010U.S. census data, there are 36.8 million women between the ages of 50 and 70 in the U.S.,  suggesting that there are more than 1.7 million adnexal masses in this segment alone. Although many of these do not present to the physician or are not concerning enough to warrant surgery, those that do require evaluation for the likelihood for malignancy could potentially benefit from the use of OVA1.

The ACOG and the SGO have issued guidelines to help physicians evaluate adnexal masses for malignancy. These guidelines take into account menopausal status, CA125 levels, and physical and imaging findings. However, these guidelines have notable shortcomings because of their reliance on diagnostics with certain weaknesses. Most notably, the CA125 blood test, which is cleared by the FDA only for monitoring for recurrence of ovarian cancer, is negative in up to 50% of early stage ovarian cancer cases. Moreover, CA125 can be elevated in numerous conditions and diseases other than ovarian cancer, including benign ovarian masses and endometriosis. These shortcomings limit the CA125 blood test’s utility in distinguishing benign from malignant ovarian tumors or for use in detection of early stage ovarian cancer. Transvaginal ultrasound is another diagnostic modality used with patients with ovarian masses. Attempts at defining specific morphological criteria that can aid in a benign versus malignant diagnosis have led to the morphology index and the risk of malignancy index, with reports of 40-70% predictive value. However, ultrasound interpretation can be variable and dependent on the experience of the operator. Accordingly, the ACOG and SGO guidelines perform only modestly in identifying early stage ovarian cancer and malignancy in pre-menopausal women. Efforts to improve detection of cancer by lowering the cutoff for CA125 (the “Modified ACOG/SGO Guidelines”) provide only a modest benefit, since CA125 is absent in about 20% of epithelial ovarian cancer cases and is poorly detected in early stage ovarian cancer overall.

Commercialization

In 2013, we offered OVA1 exclusively through Quest Diagnostics and in 2014, we offered OVA1 both through Quest Diagnostics and ASPiRA LABS. On March 11, 2015, the Company entered into a new commercial agreement with Quest Diagnostics. Pursuant to this agreement, all OVA1 U.S. testing services for Quest Diagnostics customers were transferred to Vermillion’s wholly-owned subsidiary, ASPiRA LABS, as of August 10, 2015, with the exception of a nominal number of OVA1 tests distributed through Quest Diagnostics after that date. Quest Diagnostics is continuing to provide blood draw and logistics support by transporting specimens from its clients to ASPiRA LABS for testing through at least March 11, 2017 in exchange for a

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market value fee. Per the terms of the new commercial agreement, the Company will not offer to existing or future Quest Diagnostics customers CA 125-II or other tests that Quest Diagnostics offers.

Customers

In the United States, the IVD market can be segmented into three major groups: clinical reference laboratories, the largest of which are Quest Diagnostics and Laboratory Corporation of America; hospital laboratories; and physician offices. In 2013 and 2014,virtually all of ourproduct revenue was generated through Quest Diagnostics.  In 2015, our revenue was generated through Quest Diagnostics and ASPiRA LABS. In 2016, we expect to generate virtually all of our revenue through ASPiRA LABS.Outside the United States, laboratories may become customers, either directly with us or via distribution relationships established between us and authorized distributors. In 2015,we began to actively seek out distributors/partners outside the United States for an anticipated 2016 launch.

Research and Development

Our research and development efforts center on the discovery and validation of biomarkers and combinations of biomarkers that can be developed into diagnostic assays. We do this predominantly through collaborations we have established with academic institutions such as JHU and M.D. Anderson as well as through contract research organizations such as PrecisionMed. In addition, we actively seek collaborations and initiate dialog with clinical academics, in order to generate publications, intellectual property or test development in broader areas of gynecologic oncology and other gynecologic diseases.

Scientific Background

Genes are the hereditary coding system of living organisms. Genes encode proteins that are responsible for cellular functions. The study of genes and their functions has led to the discovery of new targets for drug development. Industry sources estimate that, within the human genome, there are approximately 30,000 genes. Although the primary structure of a protein is determined by a gene, the active structure of a protein is frequently altered by interactions with additional genes or proteins. These subsequent modifications result in hundreds of thousands of different proteins. In addition, proteins may interact with one another to form complex structures that are ultimately responsible for cellular functions.

Genomics allows researchers to establish the relationship between gene activity and disease. However, many diseases are manifested not at the genetic level, but at the protein level. The complete structure of modified proteins cannot be determined by reference to the encoding gene alone. Thus, while genomics provides some information about diseases, it does not provide a full understanding of disease processes. We are focused on converting recent advances in proteomics into clinically useful diagnostic tests.

Relationship Between Proteins and Diseases

The entire genetic content of any organism, known as its genome, is encoded in strands of deoxyribonucleic acid (“DNA”). Cells perform their normal biological functions through the genetic instructions encoded in their DNA, which results in the production of proteins. The process of producing proteins from DNA is known as gene expression or protein expression. Differences in living organisms result from variability in their genomes, which can affect the types of genes expressed and the levels of gene expression. Each cell of an organism expresses only approximately 10% to 20% of the genome. The type of cell determines which genes are expressed and the amount of a particular protein produced. For example, liver cells produce different proteins from those produced by cells found in the heart, lungs, skin, etc. Proteins play a crucial role in virtually all biological processes, including transportation and storage of energy, immune protection, generation and transmission of nerve impulses and control of growth. Diseases may be caused by a mutation of a gene that alters a protein directly or indirectly, or alters the level of protein expression. These alterations interrupt the normal balance of proteins and create disease symptoms. A protein biomarker is a protein or protein variant that is present in a greater or lesser amount in a disease state versus a normal condition. By studying changes in protein biomarkers, researchers may identify diseases prior to the appearance of physical symptoms. Historically, researchers discovered protein biomarkers as a byproduct of basic biological disease research, which resulted in the validation by researchers of approximately 200 protein biomarkers that are being used in commercially available clinical diagnostic products.

Limitations of Existing Diagnostic Approaches

The IVD industry manufactures and distributes products that are used to detect thousands of individual components present in human derived specimens. However, the vast majority of these assays are used specifically to identify single protein biomarkers. The development of new diagnostic products has been limited by the complexity of disease states, which may be caused or characterized by several or many proteins or post-translationally modified protein variants. Diagnostic assays that are limited to the detection of a single protein often have limitations in clinical specificity (true negatives) and sensitivity (true positives) due to the complex nature of many diseases and the inherent biological diversity among populations of people. Diagnostic products that are limited to the detection of a single protein may lack the ability to detect more complex diseases, and thus produce results that are unacceptable for practical use. The heterogeneity of disease and of the human response to disease often underlies the shortcoming of single biomarkers to diagnose and predict many diseases accurately.

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Our Solution

Our studiesin ovarian cancer have given us a better understanding of both the disease pathophysiology and the host response. By using multiple biomarkers rather than a single biomarker,  we are able to better characterize the disease and host response heterogeneity. In addition, by examining specific biomarkers and their variants,  (e.g., post-translational modifications), we believe we can improve sensitivity and specificity over traditional diagnostic biomarkers because these biomarker combinations reflect both the pathophysiology and host response. This is accomplished using novel biomarker panels coupled with multivariate pattern recognition software to identify IVDMIA algorithmswhich can be commercialized as disease-specific assays.

We are applying translational biomarker research, algorithm development tools, and statistical error modeling methods to discover robust associations between biomarker panels and clinically relevant disease endpoints. Weplan to develop new IVDMIA algorithms and molecular diagnostic tests based on known and newly identified protein markers to help physicians better predict and manage disease and treatment, and thereby improve patient outcomes and overall health economic resource utilization.Examples of diagnostic applications include, but are not limited to: asymptomatic population screening, early detection, triage to specialists, aid in diagnosis, prognosis or disease sub-classification, prediction or selection of therapy, monitoring of therapeutic response or residual disease, monitoring for recurrence or identification of appropriate fallback therapy or clinical trial eligibility.

We therefore anticipate ongoing and new partnerships with leading scientific and clinical institutions who have active proteomic or genomic programs in the area of gynecologic cancers, or with relevant clinical trial interests, with the goal of expanding our product portfolio with relevant solutions to unmet medical needs in women’s health.

Addressing the Heterogeneity of Disease

Our approach is to create a diagnostics paradigm that is based on risk estimation, multiple-biomarker testing and information integration. This is based on the belief that cancer and other gynecologic diseasesare heterogeneous and, therefore, that relying on a single disease biomarker to provide a simple “yes-no” answer is likely to fail. We believe that efforts to diagnose cancer and other complex diseases have failed in large part because the disease is heterogeneous at the causative level, meaning that most diseases can be traced to multiple potential etiologies, and at the individual response level, meaning that each individual afflicted with a given disease can respond to that ailment in a specific manner. Consequently, diagnosis, disease monitoring and treatment decisions can be challenging. This heterogeneity of disease and difference in human response to disease and/or treatment underlies the shortcomings of single biomarkers to predict and identify many diseases. A better understanding of heterogeneity of disease and human response is necessary for improved diagnosis and treatment of many diseases.

Validation of Biomarkers Through Proper Study Design

Analysis of peer-reviewed publications reveals almost daily reports of novel biomarkers or biomarker combinations associated with specific diseases. Few of these are used clinically. As with drug discovery, preliminary research results fail to canvass sufficient variation in study populations or laboratory practices and, therefore, the vast majority of candidate biomarkers fail to be substantiated in subsequent studies. Recognizing that validation is the point at which most biomarkers fail, our strategy is to reduce the attrition rate between discovery and clinical implementation by building validation into the discovery process. Biomarkers fail to validate for a number of reasons, which can be broadly classified into pre-analytical and analytical factors. Pre-analytical factors include study design that does not mimic actual clinical practice, inclusion of the wrong types of control individuals and demographic bias (usually seen in studies in which samples are collected from a single institution). Analytical factors include poor control over laboratory protocols, inadequate randomization of study samples and instrumentation biases (e.g., higher signal early in the experimental run compared to later in the experimental run). Finally, the manner in which the data are analyzed can have a profound impact on the reliability of the statistical conclusions.

When designing clinical studies, we begin with the clinical question, since this drives the downstream clinical utility of the biomarkers. With the starting point of building validation into the discovery process, we design our studies to include the appropriate cases and control groups. We further incorporate an initial validation component within the discovery component. We place an emphasis on multi-institutional studies, inclusion of clinically relevant controls, using qualified and trained operators to run assays and collect data. For example, in an August 2004 cancer research paper, which describes the first three biomarkers in the ovarian cancer panel, there were more than 600 specimen samples taken from five hospitals that were analyzed. In the development of OVA1 and Overa,  we analyzed more than 2,500 samples from five additional medical centers prior to initiating the prospective ovarian clinical study for submission to the FDA. In analyzing the complex proteomics data, we take a skeptical view of statistical methodologies, choosing to use a variety of approaches and looking for concordance between approaches, taking the view that biomarkers deemed significant by multiple statistical algorithms are more likely to reflect biological conditions than mathematical artifacts.

New Ovarian Cancer Indications

While our focus on supporting the commercialization of OVA1 is our primary priority, we also may extend our ovarian cancer franchise beyond OVA1, enabled by several factors: 

· We completed development and validation of a product improvement to OVA1, known as Overa,with submission of a FDA 510(k) clearance application inMarch 2015, and we received such FDA clearance on March 18, 2016; 

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· The collection of clinical samples from prospectively enrolled adnexal surgery patients enables further biomarker and bio-analytical research, both in detection of ovarian cancer and also markers and risk factors for other gynecologic diseases which present with similar signs and symptoms;

· Vermillion possesses a large and growing portfolio of intellectual property, generated through collaborative research and licensing;

· We have highly curated clinical samples, intellectual property and promising biomarker leads. These have the potential to further amplify our ovarian cancer diagnostic efforts in the future;  

· Clinical collaborations such as the independent clinical research program mentioned above typically include licensing options when valuable intellectual property or product opportunities result; and

· Vermillion’s success in translating biomarkers into FDA-cleared, widely available commercial products creates increasing interest in licensing, co-marketing and/or acquisition of intellectual property and products from academics and technology providers. We believe we are well-positioned in gynecologic health markets to launch new products developed, licensed, co-marketed or acquired by any of these routes.

Our research and development expenses were $3,751,000 and $4,667,000 for the years ended December 31, 2015and2014, respectively. The decrease from the prior year was due primarily to a significantdecrease in payments to JHU as development work on Overa was completed in 2014.

Commercial Operations

We have a commercial infrastructure, including sales and marketing and reimbursement expertise. We also operate a national CLIA certified clinical laboratory, ASPiRA LABS.  Our sales representatives work to identify opportunities for educating general gynecologists and gynecologic oncologists on the benefits of OVA1.  In March 2015, we announced that OVA1 was CE marked, a requirement for marketing the test in the European Union.  In February 2015, Vermillion received ISO 13485:2003 certification for our quality management system from the British Standards Institution (BSI), one of the world's leading certification bodies. We are targetingmarkets outside of the United States now that we have migrated OVA1 onto the Roche cobas platform, which is available globally. In 2015, we began to actively seek out distributors/partners outside the United States so that we may begin marketing OVA1 outside the United States in 2016.On October 26, 2015, we announced registration of the CE mark for and clearance to market Overa in the European Union.

Approximately 13,598 OVA1 tests were performed in 2015 compared to 16,839 in 2014 with the decrease being attributed to account losses associated with the transition of accounts from Quest Diagnostics to ASPiRA.In 2015, we continued to develop the market through experienced strategic account managers, market development specialists,  customer account managers and medical science liaisons.  As market awareness continues to build, these managers are focused on efforts that will have a positive impact on regional payers and create positive coverage decisions.  They are working with local key opinion leaders and meeting with medical directors to discuss the clinical need, our technology assessment package and increasing experience and cases studies showing the positive outcomes utilizing OVA1. 

There are still obstacles to overcome and significant milestones ahead.  First, the average gynecologist will only see about 2 to 4 patients per month who may need our test,and additional effort will be required to establish a consistent ordering pattern.  Second, insurance coverage and patient bills are a concern to the physician and can disrupt the ordering pattern of a generalist who is supportive of OVA1.

Reimbursement

Because testing has transitioned from Quest Diagnostics to ASPiRA LABS, we assumed responsibility for billing third-party payers for OVA1.  In the United States, revenue for diagnostic tests comes from several sources, including third-party payers such as insurance companies, government healthcare programs, such as Medicare and Medicaid and patients.  Novitas Solutions, the Medicare contractor that has jurisdiction over claims submitted by Quest Diagnostics for OVA1, covers and reimburses forOVA1.  This local coverage determination from Novitas Solutionsshould essentially provide national coverage for patients enrolled in Medicare as well as Medicare Advantage health plans. However, ASPiRA has experienced difficulty in obtaining payment from Novitas Solutions for most claims submitted due to Novitas Solutions’administrative requirements. ASPiRA is working actively to rectify this issue.

In December 2013, the CMS made its final determination and authorized Medicare contractors to set prices for Multianalyte Assays with Algorithmic Analyses (“MAAA”) test CPT codes when they determine it is payable.New and innovative diagnostic tests often face reimbursement challenges that can affect adoption, including: 

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Coding

· OVA1 is a new class of diagnostics, and therefore no specific code existed at the time of its launch.  This is often the case with new diagnostic tests, and companies will bill using a miscellaneous code, which is the path we and Quest Diagnostics implemented.  After establishing OVA1 in the market, creating demand and demonstrating the utility of the test, we applied for and receivedan American Medical Association (“AMA”) Current Procedural Terminology (“CPT”) Category I code specific for OVA1which was effective beginning January 1, 2013.Achieving the unique Category I CPT code # 81503 wasa critical step in our commercialization process.

· Our test list price through ASPiRA LABS is $1,495 per test.

Claims Process

· In the early launch of a product, claims can be rejected due to lack of medical necessity, lack of payer understanding, or even billing process errors.  To address these items, we are engaging with physicians’ offices to assist in the appeals process for our customers. We are using these claims to educate payers and create awareness about the medical necessity of our test. 

Payer Coverage

· We have continued to focus ongoing efforts toward obtaining national coverage decisions.  However, these decisions typically have a much longer lead time due to industry established processes and time frames.  In most cases, these entail clinical and technical reviews that are performed on an annual basis.

· We have assembled a Technology Assessment Package to provide a nucleus of materials tailored to each National Plan. 

· We have launched a program to aid local key opinion leaders to work with health plans to support coverage for OVA1.  These strategic actions are necessary steps to convert those plans representing numerous regional payers and late adopters. 

Competition

The diagnostics industry in which we operate is competitive and evolving. There is intense competition among healthcare, biotechnology and diagnostics companies attempting to discover candidates for potential new diagnostic products. These companies may:

· develop new diagnostic products in advance of us or our collaborators;

· develop diagnostic products that are more effective or cost-effective than those developed by us or our collaborators;

· obtain regulatory clearance or approval of their diagnostic products more rapidly than us or our collaborators; or

· obtain patent protection or other intellectual property rights that would limit our or our collaborators’ ability to develop and commercialize, or a customers’ ability to use our or our collaborators’ diagnostic products.

We compete with companies in the United States and abroad that are engaged in the development and commercialization of novel biomarkers that may form the basis of novel diagnostic tests. These companies may develop products that are competitive with and/or perform the same or similar functions as the products offered by us or our collaborators, such as biomarker specific reagents or diagnostic test kits. Also, clinical laboratories may offer testing services that are competitive with the products sold by us or our collaborators. For example, a clinical laboratory can either use reagents purchased from manufacturers other than us or use its own internally developed reagents to make diagnostic tests. If clinical laboratories make tests in this manner for a particular disease, they could offer testing services for that disease as an alternative to products sold by us used to test for the same disease. The testing services offered by clinical laboratories may be easier to develop and market than test kits developed by us or our collaborators because the testing services are not subject to the same clinical validation requirements that are applicable to FDA-cleared or approved diagnostic test kits.

Fujirebio Diagnostics sellsRisk of Ovarian Malignancy Algorithm (“ROMA”). ROMAcombines two tumor markers and menopausal status into a numerical score using a publicly available algorithm.  This test has the same intended use and precautions as OVA1.ROMA is currently marketed as having utility limited to epithelial ovarian cancers, which accounts for 80% of ovarian malignancies. Based upon the results of a 2013 study, we believe that OVA1 has superior performance when compared to the Fujirebio Diagnostics test.

In addition, competitors such as Becton Dickinson, ArrayIt Corporation and Abbott Laboratories have publicly disclosed that they have been or are currently working on ovarian cancer diagnostic assays. Academic institutions periodically report new findings in ovarian cancer diagnostics that may have commercial value.

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Intellectual Property Protection

Our intellectual property includes the registered trademarks for Vermillion, OVA1 and OvaCalc and a portfolio of owned, co-owned or licensed patents and patent applications.  As of December 31,  2015,  ourclinical diagnostics patent portfolio included 20issued United States patents, 13pending United States patent applications, and numerous pending patent applications and issued patents outside the United States. These patents and patent applications fall into 25patent families and are directed to diagnostic technologies.Core assets include diagnostic technologies for ovarian and breast cancer, which fall into our corporate focus on gynecologic oncology and women’s health. These may be useful in the development of patent-protected products. The clinical diagnostics market includes laboratories engaged in the research and development and/or manufacture of diagnostic tests using biomarkers, commercial clinical laboratories, hospitals and medical clinics that perform diagnostic tests.

Our existing research collaboration agreement with JHU expires on March 31, 2016.  Collaboration costs under the JHU collaboration were $600,000 and $1,323,000 for the years ended December 31,  2015and 2014, respectively. In addition, under the terms of our amended research collaboration agreement with JHU, we are 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.Other institutions and companies from which we hold options to license intellectual property related to biomarkers or are a co-inventor on applications include UCL, M.D. Anderson, UK, OSU, McGill University (Canada), Eastern Virginia Medical School, Aaron Diamond AIDS Research Center, UTMB, Goteborg University (Sweden), University of Kuopio (Finland), The Katholieke Universiteit Leuven (Belgium) and Rigshospitalet.

Manufacturing

We are the manufacturer of OVA1. Components of OVA1 include purchased reagents for each of the component assays as well as the OvaCalc® software. Because we do not directly manufacture the component assays, we are required to maintain supply agreements with manufacturers of each of the assays. As part of ourquality systems, reagent lots for these assays are tested to ensure they meet specifications required for inclusion in OVA1. Only reagent lots determined by us as having met these specifications are permitted for use in OVA1. Our principal suppliers are Roche Diagnostics Corporation and Siemens Healthcare Diagnostics, Inc.

Environmental Matters

Medical Waste

We are subject to licensing and regulation under federal, state and local laws relating to the handling and disposal of medical specimens and hazardous waste as well as to the safety and health of laboratory employees. ASPiRA LABS is operated in material compliance with applicable federal and state laws and regulations relating to disposal of all laboratory specimens. We utilize outside vendors for disposal of specimens. We cannot eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of these materials. We could be subject to fines, penalties and damages claims in the event of an improper or unauthorized release of, or exposure of individuals to, hazardous materials. In addition, claimants may sue us for injury or contamination that results from our use, or the use by third parties, of these materials, and our liability may exceed our total assets. Compliance with environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development or production efforts.

Occupational Safety

In addition to its comprehensive regulation of safety in the workplace, the Federal Occupational Safety and Health Administration has established extensive requirements relating to workplace safety for healthcare employers whose workers may be exposed to blood-borne pathogens such as HIV and the hepatitis virus. These regulations, among other things, require work practice controls, protective clothing and equipment, training, medical follow-up, vaccinations and other measures designed to minimize exposure to chemicals and transmission of the blood-borne and airborne pathogens. Although we believe that we have complied in all material respects with such federal, state and local laws, failure to comply could subject us to denial of the right to conduct business, fines, criminal penalties and other enforcement actions.

Specimen Transportation

Regulations of the Department of Transportation, the International Air Transportation Agency, the Public Health Service and the Postal Service apply to the surface and air transportation of clinical laboratory specimens.  Although we believe that we have complied in all material respects with such federal, state and local laws, failure to comply could subject us to denial of the right to conduct business, fines, criminal penalties and other enforcement actions.

Government Regulation

General.Our activities related to diagnostic products are, or have the potential to be, subject to regulatory oversight by the FDA under provisions of the Federal Food, Drug and Cosmetic Act and regulations thereunder, including regulations governing the development, marketing, labeling, promotion, manufacturing and export of our products. The Federal Food, Drug and Cosmetic Act requires that medical devices introduced to the United States market, unless exempted by regulation, be the subject of either a pre-

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market notification clearance, known as a 510(k) clearance or 510(k) de novo clearance, or a pre-market approval (“PMA”).  OVA1 was cleared by the FDA in September 2009 under the 510(k) de novo guidelines.  OVA1 was the first FDA-cleared blood test for the pre-operative assessment of ovarian masses.  Wesubmitted a 510(k) clearance application to the FDA for Overa, our second-generation biomarker panel in early March 2015.We received FDA clearance for Overa on March 18, 2016.

Even in the case of devices like analyte specific reagents (“ASRs”), which may be exempt from 510(k) clearance or PMA approval requirements, the FDA may impose restrictions on marketing. Our potential future ASR products may be sold only to clinical laboratories certified under CLIA to perform high complexity testing. In addition to requiring approval or clearance for new products, the FDA may require approval or clearance prior to marketing products that are modifications of existing products or the intended uses of these products. Additionally, the FDA will generally conduct a pre-approval inspection for PMA devices. Our suppliers’manufacturingfacilitiesare subjectto periodicand unannouncedinspectionsby theFDAand stateagenciesforcompliancewith QualitySystemRegulations(“QSRs”). Additionally,theFDA willgenerallyconducta pre-approvalinspectionforPMA devices. Although we believe that we and our suppliers will be able to operate in compliance with the FDA’s QSRs for ASRs, we cannot ensure that we or our suppliers will be in or be able to maintain compliance in the future. We have never been subject to an FDA inspection and cannot ensure that we will pass an inspection, if and when it occurs. If the FDA believes that we or our suppliers are not in compliance with applicable laws or regulations, the FDA can issue a Form 483 List of Observations or warning letter, detain or seize our products, issue a recall notice, enjoin future violations and assess civil and criminal penalties against us. In addition, approvals or clearances could be withdrawn under certain circumstances.

ASPiRA LABS and any customers using our products for clinical use in the United States may be regulated under CLIA, which is intended to ensure the quality and reliability of clinical laboratories in the United States by mandating specific standards in the areas of personnel qualifications, administration, participation in proficiency testing, patient test management, quality control, quality assurance and inspections. The regulations promulgated under CLIA establish three levels of diagnostic tests - namely, waived, moderately complex and highly complex - and the standards applicable to a clinical laboratory depend on the level of the tests it performs.

FDA Regulation of Cleared Tests.  Once granted, a 510(k) clearance or PMA approval may place substantial restrictions on how our device is marketed or to whom it may be sold. All devices cleared by the FDA are subject to continuing regulation by the FDA and certain state agencies. As a medical device manufacturer, we are also required to register and list our products with the FDA. We are required to set forth and adhere to a quality policy and other regulations. In addition, we are required to comply with the FDA’s QSRs, which require that our devices be manufactured and records be maintained in a prescribed manner with respect to manufacturing, testing and control activities. Additionally, we may be subject to inspection by federal and state regulatory agencies. Non-compliance with these standards can result in, among other things, fines, injunctions, civil penalties, recalls, and total or partial suspension of production. Further, we are required to comply with FDA requirements for labeling and promotion. For example, the FDA prohibits cleared or approved devices from being promoted for uncleared or unapproved uses. Labeling and promotional activities are subject to scrutiny by the FDA, which prohibits the marketing of medical devices for unapproved uses. Additionally, the FDA requires us to perform certain post-marketing studies to verify or validate the clinical performance of FDA-cleared tests, as is permitted by their statutory authority.Failure to comply with our post-marketing study requirements may lead to enforcement actions by the FDA, including seizure of our product, injunction, prosecution and/or civil money penalties.

In addition, the medical device reporting regulation requires that we provide information to the FDA whenever evidence reasonably suggests that one of our devices may have caused or contributed to a death or serious injury, or where a malfunction has occurred that would be likely to cause or contribute to a death or serious injury if the malfunction were to recur.

Foreign Government Regulation of Our Products.We intend to obtain regulatory approval in other countries to market our tests. Medical device laws and regulations are in effect in many of the countries in which we may do business outside the United States. These range from comprehensive device approval requirements for some or all of our potential future medical device products, to requests for product data or certifications. The number and scope of these requirements are increasing. In addition, products which have not yet been cleared or approved for domestic commercial distribution may be subject to the FDA Export Reform and Enhancement Act of 1996.  Each country also maintains its own regulatory review process, tariff regulations, duties and tax requirements, product standards, and labeling requirements. In March 2015, OVA1 wasCE marked, a requirement for marketing the test in the European Union.In February 2015, Vermillion also received ISO 13485:2003 certification for our quality management system from the British Standards Institution (BSI), one of the world's leading certification bodies.On October 26, 2015, we announced registration of the CE mark for and clearance to market Overa in the European Union.

Employees

As of December 31, 2015, we had 54employees who are all full-time.  We also engage independent contractors from time to time.

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Code of Ethics for Executive Officers

We have adopted a Code of Ethics for Executive Officers. We publicize the Code of Ethics for Executive Officers by posting the policy on our website, www.vermillion.com. We will disclose on our website any waivers of, or amendments to, our Code of Ethics.

Corporate Information

We were originally incorporated in 1993, and we had our initial public offering in 2000.  Our executive offices are located at 12117 Bee Caves Road, Building Three, Suite 100, Austin, Texas 78738, and our telephone number is (512) 519-0400.  We maintain a website at www.vermillion.com and www.aspiralab.com where general information about us is available. 

Information About Us

We file annual reports, quarterly reports, current reports, proxy statements, and other information with the SEC. You may read and copy any material we file with the SEC at the SEC’s Public Reference Room located at the following address:

100 F Street, NE
Washington, DC  20549

You may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website, www.sec.gov, that contains reports, proxy statements, and other information regarding issuers that file electronically with the SEC.

In addition, we make available free of charge under the Investors Relation section of our website, www.vermillion.com, the Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”) as soon as reasonably practicable after we have electronically filed such material with or furnished such material to the SEC. You may also obtain these documents free of charge by submitting a written request for a paper copy to the following address:

Investor Relations

Vermillion, Inc.
12117 Bee Caves Road, Building Three, Suite 100
Austin, TX 78738

The information contained on our websites is not incorporated by reference in this Annual Report on Form 10-K and should not be considered a part of this Annual Report on Form 10-K.

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ITEM 1A.          RISK FACTORS

Investing in our securities involves a high degree of risk. You should carefully consider the following risk factors and uncertainties together with all of the other information contained in this Annual Report on Form 10-K, including our audited consolidated financial statements and the accompanying notes in Part II Item 8, “Financial Statements and Supplementary Data.”  If any of the following risks materializes, our business, financial condition,  results of operations and growth prospects could be materially adversely affected, and the value of an investment in our common stock may decline significantly. The risks and uncertainties described below 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, results of operations and growth prospects

Risks Related to Our Business

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

We have experienced significant operating losses each year since our inception and we expect to incur a net loss for fiscal year 2016and the foreseeable future.  Our losses have resulted principally from costs incurred in research and development, sales and marketing, and general and administrative costs.

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

In the past, a significant amountof our revenue was derived from Quest Diagnostics,andas testing services have recently been transitioned to ASPiRA LABS,there is no guarantee that we will be able to successfully market our test through additional channels, including ASPiRA LABS, in the future.  

Virtually all of our revenue during 2014 was derived through our strategic partnership with Quest Diagnostics and in 2015, Quest Diagnostics largely transitioned OVA1 testing services for its customers to ASPiRA LABS.  Prior to the transition, revenue generated from Quest Diagnostics was based on the number of OVA1 tests performed by Quest Diagnostics and the reimbursement rate received by Quest Diagnostics for those tests. We  continue to depend on Quest Diagnostics for blood draw and logistics for a significant portion of our specimens.There is no guarantee that Quest Diagnostics will perform as expected, or provide a sufficient volume of OVA1 test samples to support our business. Due in part to this uncertainty, we plan to offer OVA1 through additional channels in the future, although there can be no assurance that we will be able to do so.  In addition, as a result of the transition of OVA1 testing services from Quest Diagnostics to ASPiRA LABS, we have assumed responsibility for obtaining payment from third-party payers, whereas prior to the transition, Quest Diagnostics performed that task.  Quest Diagnostics has more bargaining power with third-party payers than we do, and as a result, we may not be able to achieve reimbursement rates that are as high as those received by Quest Diagnostics.If we are not successful in adding additional sales channels or if we do not experience growing OVA1 test volumes or receive less reimbursement per test than expected, there could be a material adverse effect on our business, results of operations and financial condition.

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

Virtually all of our product revenue in 2014 was dependent on the amount Quest Diagnostics received from third-party payers for performing OVA1 tests.  In 2015, Quest Diagnostics largely transitioned OVA1 testing services for its customers to ASPiRA LABS.  As a result of the transition, we have assumed responsibility for obtaining payment from third-party payers, whereas prior to the transition, Quest Diagnostics performed that task.  Accordingly, our future revenues will be dependent upon third-party reimbursement payments to ASPiRA LABS. Insurance coverage and reimbursement rates for diagnostic tests are uncertain, subject to change and particularly volatile during the early stages of commercialization. There remain questions as to what extent third-party payers, like Medicare, Medicaid and private insurance companies will provide coverage for OVA1 and for which indications. CMS is in the process of developing payment codes and reimbursement rates under Medicare for certain next generation sequencing tests which may include certain Multianalyte Assays with Algorithmic Analyses, such as our OVA1 test.  There is no guarantee that CMS will issue the codes and rates, that the codes will continue to cover the OVA1 test or that the payment rate will be comparable to current Medicare reimbursement levels for the test.  Such uncertainty could create payment uncertainty from other payers as well.  The reimbursement rates for OVA1 are largely out of our control.  We have experienced volatility in the coverage and reimbursement of OVA1 due to contract negotiation with third-party payers and implementation requirements and that the reimbursement amounts we have received from third-party payers varies from payer to payer, and, in some cases, the variation is material. 

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

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

We may seek to raise additional capital through the issuance of equity or debt securities in the public or private markets, or through a collaborative arrangement or sale of assets. Additional financing opportunities may not be available to us, or if available, may not be on favorable terms. The availability of financing opportunities will depend, in part, on market conditions, and the outlook for our business. Any future issuance of equity securities or securities convertible into equity could result in substantial dilution to our stockholders, and the securities issued in such a financing may have rights, preferences or privileges senior to those of our common stock. If we are unable to obtain additional capital, we may not be able to continue our sales and marketing, research and development or other operations on the scope or scale of our current activity.

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

We submitted our 510(k) clearance application for Overa, our second-generation biomarker panel, to the FDA in March 2015.  We received FDA clearance for Overa on March 18, 2016with the goal of commencing the marketing and sale of the panel in 2016.  Overa is intended to maintain our product’s high sensitivity while improving specificity.  Though we plan to leverage off our existing infrastructure for OVA1, including ASPiRA Labs, there can be no assurance that we will be successfully able to commercialize Overa in the United States, or that we will be able to obtain reimbursement for Overa from third-party payers at the same rate as OVA1.  If we are unable to successfully commercialize Overa, the results of our operations could be adversely affected.

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

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

If we are able to execute on our plan to establish a market for Overaoutside the United States, there are risks inherent in conducting business internationally, including the following:

· data privacy laws that may apply to the transmission of any clients’ and employees’ data to the United States;

· import/export sanctions and restrictions;

· compliance with applicable anti-corruption laws;

· difficulties in managing international distributors;

· accounting, tax and legal complexities arising from international operations;

· potential difficulties in transferring funds generated overseas to the United States in a tax efficient manner; and

· political and economic instability, including recent recessionary trends.

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

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

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

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

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

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

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

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

• our ability to convince the medical community of the safety and clinical efficacy of our products and their advantages over existing diagnostic products;

• our success in establishing new clinical practices or changing previous ones, such that utilization of the tests fail to meet established standards of care, medical guidelines and the like;

• our ability to develop business relationships with diagnostic or laboratory companies that can assist in the commercialization of these products in the U.S. and globally; and

• the scope and extent of the agreement by Medicare and third-party payers to provide full or partial reimbursement coverage for our products, which will affect patients’ willingness to pay for our products and will likely heavily influence physicians’ decisions to recommend or use our products.

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

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

Our principal competition currently comes from the many clinical options available to medical personnel involved in clinical decision making. For example, rather than ordering an OVA1 test for a woman with an adnexal mass, obstetricians, gynecologists, and gynecologic oncologists may choose a different clinical option or none at all. If we are not able to convince clinicians that OVA1 provides significant improvement over current clinical practices, our ability to commercialize OVA1 will be adversely affected. Additionally, in September 2011,  Fujirebio Diagnostics received FDA clearance for its ROMA test. ROMA combines two tumor markers and menopausal status into a numerical score using a publicly available algorithm. This test has the same intended use and precautions asOVA1, and our revenues could be materially and adversely affected if the ROMA test is successfully commercialized. In addition, competitors, such as Becton Dickinson, ArrayIt Corporation, and Abbott Laboratories have publicly disclosed that they have been or are currently working on ovarian cancer diagnostic assays. Academic institutions periodically report new findings in ovarian cancer diagnostics that may have commercial value. Our failure to compete with any competitive diagnostic assay if and when commercialized could adversely affect our business, financial condition and results of operations.  

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

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

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

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

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

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

The commercialization of our products could be delayed, halted or prevented by applicable FDA regulations. If the FDA were to view any of our actions as non-compliant, it could initiate enforcement actions, such as a warning letter and possible imposition of penalties. For instance, we are subject to a number of FDA requirements, including compliance with the FDA’s Quality System

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Regulations “QSR” requirements, which establish extensive requirements for quality assurance and control as well as manufacturing procedures. Failure to comply with these regulations could result in enforcement actions for us or our potential suppliers. Adverse FDA actions in any of these areas could significantly increase our expenses and reduce our revenue. We will need to undertake steps to maintain our operations in line with the FDA’s QSR requirements. Some components of OVA1 and Overa are manufactured by other companies and we are required to ensure that, to the extent that we incorporate those components into our finished OVA1 or Overa test, we use those components in compliance with QSR. Any failure to do so would have an adverse effect on our ability to commercialize OVA1 or Overa. Our suppliers’ manufacturing facilities, since they manufacture finished kits that we use in OVA1 and Overa,are subject to periodic regulatory inspections by the FDA and other federal and state regulatory agencies. Our facility also is subject to FDA inspection. We or our suppliers may not satisfy such regulatory requirements, and any such failure to do so may adversely affect our business, financial condition and results of operations.

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

The commercialization of our OVA1 and Overa tests depend on the supply of five different immunoassay kits from third-party manufacturers run on automated instruments. Failure by any of these manufacturers to produce kits that pass Vermillion’s quality control measures might lead to back-order and/or loss of revenue due to missed sales and customer dissatisfaction. In addition, if the design or labeling of any kit were to change, continued OVA1or Overa supply could be threatened since new validation and submission to the FDA for 510(k) clearance could be required as a condition of sale. Discontinuation of any of these kits would require identification, validation and 510(k) submission on a revised OVA1or Overa design. Likewise, discontinuation or failure to support or service the instruments may pose risk to ongoing operations.

Effective December 2014, one of the five immunoassay component kits that are used in OVA1 ceased to be supported on the instrument as the manufacturer transitioned to a newer platform. While we have not experienced and do not anticipate disruption of ongoing operations, failure of the manufacturer to provide extended service or support might harm our business. Overa consolidates the five OVA1 immunoassays onto a single mainstream automated platform and substitutes a new immunoassay component kit for the discontinuing kit as a mitigating action. Although we received a 510(k) clearance from the FDA for Overa on March 18, 2016, there can be no assurances that there will not be future disruptions in our supply chain. Any resulting disruption to our supply of OVA1 or Overawould adversely affect our business, financial condition and results of operations.

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

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

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

Our success depends in part on our ability to maintain and enforce our proprietary rights. We rely on a combination of patents, trademarks, copyrights and trade secrets to protect our technology and brand. We have submitted a number of patent applications covering biomarkers that may have diagnostic or therapeutic utility. Our patent applications may or may not result in additional patents being issued.

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

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

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

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

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

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

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

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

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

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

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

If we lose the services of any executive officers or key employees, our ability to achieve our business objectives could be harmed, which in turn could adversely affect our business, financial condition and results of operations.  

Business interruptions could limit our ability to operate our business.

Our operations, as well as those of the collaborators on which we depend, are vulnerable to damage or interruption from fire; natural disasters, including earthquakes; computer viruses; human error; power shortages; telecommunication failures; international acts of terror; and similar events. Although we have certain business continuity plans in place, we have not established a formal comprehensive disaster recovery plan, and our back-up operations and business interruption insurance may not be adequate to compensate us for losses we may suffer. A significant business interruption could result in losses or damages incurred by us and require us to cease or curtail our operations.

Legislative actions resulting in higher compliance costs may adversely affect our business, financial condition and results of operations.  

Compliance with laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, and new regulations adopted by the SEC, are resulting in increased compliance costs. We, like all other public companies, are incurring expenses and diverting employees’ time in an effort to comply with Section 404 of the Sarbanes-Oxley Act of 2002. The SEC and other regulators have continued to adopt new rules and regulations and make additional changes to existing regulations that require our compliance. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and

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disclosure obligations. Compliance with these evolving standards will result in increased general and administrative expenses and may cause a diversion of our time and attention from revenue-generating activities to compliance activities.

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

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

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

We are subject to various international, federal, state and local environmental laws and regulations that govern our operations, including the handling and disposal of non-hazardous and hazardous wastes, the recycling and treatment of electrical and electronic equipment, and emissions and discharges into the environment. Failure to comply with such laws and regulations could result in costs for corrective action, penalties or the imposition of other liabilities. We are also subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances into the environment. Under certain of these laws and regulations, a current or previous owner or operator of property may be liable for the costs to remediate hazardous substances or petroleum products on or from its property, without regard to whether the owner or operator knew of, or caused, the contamination, as well as incur liability to third parties affected by such contamination. The presence of, or failure to remediate properly, such substances could adversely affect the value and the ability to transfer or encumber such property.

The success of ASPiRA LABS depends, in part, on our ability to generate sufficient demand for its services to cover the laboratory’s operating costs, and there is no assurance that we will be able to do so successfully.

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

There is no guarantee that we be able to generate sufficient revenue in the future to offset our costs.  Our inability to successfully develop sufficient demand for the diagnostic tests processed by the laboratory could delay or prevent ASPiRA LABS from generating revenue in excess of expenses, and we may not achieve profitability from ASPiRA LABS in the foreseeable future, if at all. If we are unable to generate sufficient revenues to achieve profitability, we may be unable to continue our ASPiRA LABS operations or we may be unable to expand our offerings at ASPiRA LABS beyond ovarian cancer to other gynecologic conditions with high unmet need as we intend.  

The operation of ASPiRA LABS requires us to comply with numerous laws and regulations, which is expensive and time-consuming and could adversely affect our business, financial condition and results of operations, and any failure to comply could result in exposure to substantial penalties and other harm to our business.

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

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ASPiRA LABS holds a CLIA Certificate of Accreditation and a state laboratory license in California, Florida, Maryland, New York, Pennsylvania and Rhode Island. This allows the lab to process OVA1 on a national basis.  We are subject to periodic surveys and inspections to maintain our CLIA certification, and such certification is also required to obtain payment from Medicare, Medicaid and certain other third-party payers.  Failure to comply with CLIA or state law requirements may result in the imposition of corrective action or the suspension or revocation of our CLIA certification or state licenses. If our CLIA certification or state licenses are suspended or revoked or our right to bill the Medicare and Medicaid programs or other third-party payers is suspended, we would no longer be able to sell our tests, which would adversely affect our business, financial condition and results of operations.

In addition, no assurance can be given that ASPiRA LABS’  suppliers or commercial partners will remain in compliance with applicable CLIA and other federal or state regulatory requirements for laboratory operations and testing. ASPiRA LABS’ facilities and procedures and those of ASPiRA LABS’ suppliers and commercial partners are subject to ongoing regulation, including periodic inspection by regulatory and other government authorities. Possible regulatory actions for non-compliance could include warning letters, fines, damages, injunctions, civil penalties, recalls, seizures of ASPiRA LABS’ products, and criminal prosecution.

Our clinical laboratory business is also subject to regulation at both the federal and state level in the United States, as well as regulation in other jurisdictions outside of the United States, including:

• Medicare and Medicaid coverage, coding and payment regulations applicable to clinical laboratories;

• the FederalAnti KickbackStatute and state anti-kickback prohibitions;

• the federal physician self-referral prohibition, commonly known as the Stark Law, and state self-referral prohibitions;

• the Medicare civil monetary penalty and exclusion requirements;

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

• the Federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) as amended by the

Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”);

Many of these laws and regulations prohibit a laboratory from making payments or furnishing other benefits to influence the referral of tests (by physicians or others) that are billed to Medicare, Medicaid or certain other federal or state healthcare programs. The penalties for violation of these laws and regulations may include monetary fines, criminal and civil penalties and/or suspension or exclusion from participation in Medicare, Medicaid and other federal healthcare programs. Several states have similar laws that may apply even in the absence of government payers.  HIPAA and HITECH and similar state laws seek to protect the privacy and security of individually identifiable health information, and penalties for violations of these laws may include required reporting of breaches, monetary fines and criminal or civil penalties.

While we seek to conduct our business in compliance with all applicable laws and develop compliance policies to address risk as appropriate, many of the laws and regulations applicable to us are vague or indefinite and have not been interpreted by governmental authorities or the courts. These laws or regulations also could in the future be interpreted or applied by governmental authorities or the courts in a manner that could require us to change our operations. 

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

In the future, we plan to develop and perform LDTs at ASPiRA LABS. If the FDA finalizes its October 2014 draft guidance documents that outline the FDA’s proposal to actively regulate LDTs, we may need to obtain a 510(k) clearance or pre-market approval for our future LDTs, and there is no guarantee that we would ever procure the needed FDA clearance or approval.  We also would need to comply with ongoing regulatory requirements.

We intend to develop and perform LDTs at ASPiRA LABS in the future. The FDA has historically exercised enforcement discretion and not required approvals or clearances for LDTs. However, in October 2014, the FDA issued two draft guidance documents, entitled “Framework for Regulatory Oversight of Laboratory Developed Tests (LDTs)” and “FDA Notification and

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Medical Device Reporting for Laboratory Developed Tests (LDTs),” respectively, that set forth a proposed risk-based regulatory framework that would apply varying levels of FDA oversight to LDTs.

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

In addition, “high” and “moderate” risk tests not subject to an exemption will need to be the subject of a PMA or 510(k) submitted to the FDA in a phased-in manner. High-risk tests are those that are classified as Class III devices. Within those high-risk devices, the FDA identifies the “highest risk devices” as (1) LDTs with the same intended use as an approved or cleared companion diagnostic; (2) LDTs with the same intended use as an FDA-approved Class III device; and (3) certain LDTs for determining safety and effectiveness of blood or blood products. Moderate-risk tests are those that are classified as Class II devices. The FDA has indicated that it does not intend to modify its policy of enforcement discretion until the draft guidance documents are finalized. It is unclear at this time when, or if, the draft guidance documents will be finalized, and, if so, how the final framework might differ from the proposal. In addition, the new regulatory requirements are proposed to be phased in consistent with the schedule set forth in the guidance documents for tests that are on the market at the time the guidance documents are finalized.

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

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

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

Risks Related to Owning Our Stock

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

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

According to information provided on Schedules 13D, 13Fand 13G as recent as December 31, 2015,  fivepersons beneficially owned approximately 62% of our outstanding shares of common stock, and under a May 2013 stockholders agreement, two of these persons have certain rights to designate a director to be nominated by us to serve on the Board of Directors.  As a result, these stockholders will be able to affect the outcome of, or exert significant influence over, all matters requiring stockholder approval, including the election and removal of directors and any change in control. In particular, this concentration of ownership of our common stock could have the effect of delaying or preventing a change in control of us or otherwise discouraging or preventing a potential acquirer from attempting to obtain control of us. This, in turn, could have a negative effect on the market price of our common stock. It could also prevent our stockholders from realizing a premium over the market prices for their shares of common stock. Moreover, the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders. The concentration of ownership also contributes to the low trading volume and volatility of our common stock.

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

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

· failure to significantly increase revenue and volumes of OVA1 or Overa;

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· actual or anticipated period-to-period fluctuations in financial results;

· failure to achieve, or changes in, financial estimates by securities analysts;

· announcements or introductions of new products or services or technological innovations by us or our competitors;

· publicity regarding actual or potential discoveries of biomarkers by others;

· comments or opinions by securities analysts or stockholders;

· conditions or trends in the pharmaceutical, biotechnology or life science industries;

· announcements by us of significant acquisitions and divestitures, strategic partnerships, joint ventures or capital commitments;

· developments regarding our patents or other intellectual property or that of our competitors;

· litigation or threat of litigation;

· additions or departures of key personnel;

· limited daily trading volume;

· economic and other external factors, disasters or crises; and

· our announcement of additional fundraisings.

In addition, the stock market in general and the market for diagnostic technology companies, in particular, have experienced significant price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may adversely affectthe market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs, potential liabilities and the diversion of our attention and our resources.

Anti-takeover provisions in our charter, bylaws, other agreements and under Delaware law could make a third-party acquisition of the Company difficult.

Certain provisions of our certificate of incorporation and bylaws may have the effect of making it more difficult for a thirdparty to acquire, or of discouraging a thirdparty from attempting to acquire, control of us, even if a change of control might be deemed beneficial to our stockholders.  Such provisions could limit the price that certain investors might be willing to pay in the future for our securities.  Our certificate of incorporation eliminates the right of stockholders to call special meetings of stockholders or to act by written consent without a meeting, and our bylaws require advance notice for stockholder proposals and director nominations, which may preclude stockholders from bringing matters before an annual meeting of stockholders or from making nominations for directors at an annual meeting of stockholders.  Our certificate of incorporation also authorizes undesignated preferred stock, which makes it possible for our board of directors, without stockholder approval, to issue preferred stock with voting or other rights or preferences that could adversely affect the voting power of holders of common stock.  In addition, the likelihood that the holders of preferred stock will receive dividend payments and payments upon liquidation could have the effect of delaying, deferring or preventing a change in control.  

In connection with our private placement offering of common stock and warrants on May 13, 2013, we entered into a stockholdersagreement which, among other things, includes agreements limiting our ability to effect a change in control without the consent of at least one of the two primary investors in that offering. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of us. The amendment of any of the provisions of either our certificate of incorporation or bylaws described in the preceding paragraph would require not only approval by our board of directors and the affirmative vote of at least 66 2/3% of our then outstanding voting securities, but also the consent of at least one of the two primary investors in the May 2013 offering.  We are also subject to certain provisions of Delaware law that could delay, deter or prevent a change in control of the Company.These provisions could make a third-party acquisition of the Company difficult and limit the price that investors might be willing to pay in the future for shares of our common stock.  

We could face adverse consequences as a result of the actions of activist stockholders.

Certain of our stockholders may, from time to time, attempt to aggressively involve themselves in the governance and strategic direction of our Company above and apart from normal interactions between stockholders and management. Such activism, and any related negative publicity, could result in substantial costs that negatively impact our stock price and increase its volatility. In addition, such activism could cause a diversion of the attention of our management and Board of Directors and create perceived uncertainties with existing and potential strategic partners impacting our ability to consummate potential transactions, collaborations or opportunities in furtherance of our strategic plan. In addition, such activism could make it more difficult to attract and retain qualified personnel, customers and business partners, which could disrupt the growth of the market for OVA1 or Overa, delay the development

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and commercialization of new tests and further adversely affect the trading price of our common stock and increase its volatility. In addition, the activists may have little or no experience in the diagnostics industry or may seek to elect members to our Board of Directors with little or no experience in the diagnostics industry who may have a specific agenda different and apart from the majority of our stockholders.

Because we do not intend to pay dividends, our stockholders will benefit from an investment in our common stock only if it appreciates in value.

We have never declared or paid any cash dividends on our common stock. We currently intend to retain our future earnings, if any, to finance the expansion of our business and do not expect to pay any cash dividends in the foreseeable future. As a result, the success of an investment in our common stock will depend entirely upon any future appreciation. There is no guarantee that our common stock will appreciate in value or even maintain the price at which our stockholders purchased their shares.

We may need to sell additional shares of our common stock or other securities in the future to meet our capital requirements, which could cause significant dilution.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, grants and government funding and strategic alliances.  To the extent that we raise additional capital through the sale of equity or convertible debt, such financing may be dilutive to stockholders.  Debt financing, if available, may involve restrictive covenants and potential dilution to stockholders.  Furthermore, a perception that future sales of our common stock in the public market are likely to occur could affect prevailing trading prices of our common stock.

As of December 31, 2015, we had 52,113,059 shares of our common stock outstanding and 3,371,505 shares of our common stock reserved for future issuance to employees, directors and consultants pursuant to our employee stock plans, which excludes 3,317,811 shares of our common stock that were subject to outstanding options. In addition, as of December 31, 2015, warrants to purchase 4,587,000 shares of our common stock were outstanding.  These warrants are exercisable at the election of the holders thereof at an average exercise price of $1.96per share.

The exercise of all or a portion of our outstanding options and warrants will dilute the ownership interests of our stockholders.

ITEM 1B.      UNRESOLVED STAFF COMMENTS

None.

ITEM 2.         PROPERTIES

Our principal facility is located in Austin, Texas. The following chart indicates the facilitiesthat we lease, the location and size of each facility and its designated use. We believe that these facilities are suitable and adequate for our current needs.

Location	Approximate Square Feet	Primary Functions	Lease Expiration Date
Austin, Texas	4,218 sq. ft.	ASPiRA LABS facility, Research and development, clinical and regulatory, sales and administrative offices	May 31, 2017
Austin, Texas	1,876 sq. ft.	Clinical,  regulatory and administrative offices	Month to month, 90 days notice to cancel
Trumbull, Connecticut	10,681 sq. ft.	Administrative offices and future laboratory facility	June 2021

ITEM 3.          LEGAL PROCEEDINGS

From time to time, we are involved in legal proceedings and regulatory proceedings arising out of our operations. We establish reserves for specific liabilities in connection with legal actions that we deem to be probable and estimable. We are not currently a party to any proceeding, the adverse outcome of which would have a material adverse effect on our financial position or results of operations.

ITEM 4.           MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5.           MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock istraded on the NASDAQCapitalMarket under the symbol “VRML.”

On March 16,2016, there were 83registered holders of record of our common stock. The closing price of our common stock on March 16,  2016was $1.54.

The following sets forth the quarterly high and low trading prices as reported by The NASDAQ Capital Market for the periods indicated.

	2015				2014
	High		Low		High		Low
First Quarter	$	2.35	$	1.50	$	3.83	$	2.33
Second Quarter		2.50		1.68		3.34		2.42
Third Quarter		2.29		1.47		2.70		1.50
Fourth Quarter		2.20		1.63		2.20		1.20

Dividends

We have never paid or declared any dividend on our common stock and we do not anticipate paying cash dividends on our common stock in the foreseeable future. If we pay a cash dividend on our common stock, we also may be required to pay the same dividend on an as-converted basis on any outstanding warrants or other securities. Moreover, any preferred stock or other senior debt or equity securities to be issued and any future credit facilities might contain restrictions on our ability to declare and pay dividends on our common stock. We intend to retain all available funds and any future earnings to fund the development and expansion of our business.

Equity Compensation Plan Information

We currently maintain two equity-based compensation plans that were approved by our stockholders.  The plans are the Vermillion, Inc. 2000 Stock Plan (the “2000 Plan”), and theAmended and Restated 2010 Stock Incentive Plan, as amended (the “2010 Plan”).

2000 Plan.The authority of our Board of Directors to grant new stock options and awards under the 2000 Plan terminated in 2010.  The Board of Directors continues to administer the 2000 Plan with respect to the stock options that remain outstanding under the 2000 Plan.At December 31, 2015,  options to purchase54,100 shares of our common stock remained outstanding under the 2000 Plan.

2010 Plan.  The 2010 Plan is administered by the Compensation Committee of our Board of Directors.  Our employees, directors, and consultants are eligible to receive awards under 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, and unrestricted shares, deferred share units, performance and cash-settled awards, and dividend equivalent rights.  We are authorized to issue up to 8,122,983 shares of our common stock under the 2010 Plan, subject to adjustment as provided in the 2010 Plan. At December 31, 2015,  options to purchase3,263,711 shares of common stock remained outstanding under the 2010 Plan.

The number of shares of our common stock to be issued upon exercise of outstanding stock options, the weighted-average exercise price of outstanding stock options and the number of shares available for future stock option grants and stock awards under equity compensation plans as of December 31, 2015, were as follows:

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Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights			Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Shares Reflected in First Column)
Equity compensation plans approved by security holders	3,317,811	(1)	$	2.29	(2)	3,371,505	(3)
Equity compensation plans not approved by security holders	-			-		-
Total	3,317,811					3,371,505
(1) Includes outstanding stock options for 54,100 shares of our common stock under the 2000 Plan and 3,263,711 shares of our common stock under the 2010 Plan.
(2) Includes the weighted average stock price for outstanding stock options of $3.06 under the 2000 Plan and $2.28 for the 2010 Plan.
(3) Represents shares of our common stock for the 2010 Plan. No future awards shall occur under the 2000 Plan.

Performance Graph

Pursuant to the accompanying instructions, the information called for by Item 201(e) of Regulation S-K is not required.

ITEM 6.         SELECTED FINANCIAL DATA

Per Item 301(c) of Regulation S-K, the information called for by Item 6 of Form 10-K is not required.

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ITEM 7.           MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with our Consolidated Financial Statements and related Notes thereto, included on pages F-1 through F-19 of this Annual Report on Form 10-K, and “Risk Factors”, which are discussed in Item 1A.  The statements below contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act.  See "Forward-Looking Statements" on page 1  of this Annual Report on Form 10-K.

Overview

Our vision is to drive the advancement of women’s health by providing innovative methods to detect, monitor and manage the treatment of both benign and malignant gynecologic disease, with our primary focus being diseases of the female pelvic cavity.

We have expanded our corporate strategy with the goal of transforming Vermillion from a technology license company to a diagnostic service and bio-analytic solutions provider. Our plan is to broaden our commercial focus from ovarian cancer to differential diagnosis of women with a range of gynecological disorders. Our strategy 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 ongoing, and a market expansion and growth phase, which we expect to begin in 2016.  

During the first phase, we expanded our leadership team by hiring several new 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 plan to establish our own payer coverage for OVA1 and launch a second-generation OVA1 test, trademarked Overa.  In the third phase we plan to commercialize Overa by utilizing the full national licensure of ASPiRA LABS, managed care coverage in select markets, our sales force and existing customer base.  Unlike OVA1, Overa uses a global testing platform, which will allow Overa to be deployed internationally.  On October 26, 2015, we announced registration of the CE mark for and clearance to market Overa in the European Union.  We also plan to develop an LDT product series, which we refer to internally as OvaX.  We anticipate that OvaX will include not only biomarkers, but also clinical risk factors, other diagnostics and patient history data in order to boost predictive value.  On February 11, 2016, we adopted a plan to streamline our organization.  We have reduced headcount and other expenses targeting an approximately 20% reduction in operating expenses in 2016, as compared to operating expenses in 2015.

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

Our initial product, OVA1, is a blood test designed to, in addition to a physician’s clinical assessment of a woman with a pelvic mass, identify women who are at high risk of having a malignant ovarian tumor prior to planned surgery.  The FDA cleared OVA1 in September 2009, and we commercially launched OVA1 in March 2010.  We have completed development and validation work on a second-generation biomarker panel known as Overa, which is intended to maintain our product’s high sensitivity while improving specificity. We submitted our 510(k) clearance application for Overa to the FDA in March 2015, with the goal of commencing the marketing and sale of the panel on an early access basis in 2016.  We received FDA clearance for Overa on March 18, 2016. Overa uses the Roche cobas 6000 platform.  

In June 2014, Vermillion launched ASPiRA LABS, a Clinical Laboratory Improvements Amendments of 1988 (“CLIA”) certified national laboratory based in Austin, Texas, which specializes in applying biomarker-based technologies to address critical needs in the management of gynecologic cancers and specifically pelvic mass disease. ASPiRA LABS provides expert diagnostic services using a state-of-the-art biomarker-based diagnostic algorithm to inform clinical decision making and advance personalized treatment plans. The lab currently processes our OVA1 test, and we expect the lab to process the CA 125-II test (which is marketed and sold by a third-party) in the future in specific markets. We plan to expand the testing provided by ASPiRA LABS to other gynecologic conditions with high unmet need. We also plan to develop and perform LDTs at ASPiRA LABS. ASPiRA LABS holds a CLIA Certificate of Registration and a state laboratory license in California, Florida, Maryland, New York, Pennsylvania and Rhode Island. This allows the lab to process OVA1 on a national basis. The Centers for Medicare & Medicaid Services (“CMS”) issued a provider number to ASPiRA LABS in March 2015.

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Strategy:

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

· Maximizing the existing OVA1 opportunity in the United States by taking the lead in payer coverage and commercialization of OVA1. This strategy included the launch of a CLIA certified clinical laboratory, ASPiRA LABS, in June 2014;

· Improving OVA1 performance by obtaining FDA clearance of Overa, a  next generation biomarker panel while  migrating OVA1 to a global testing platform, which we believe may allow for better domestic market penetration and international expansion (FDA clearance was received on March 18, 2016);

· Building an expanded patient base by launching a next generation multi-marker ovarian cancer test to monitor patients at risk for ovarian cancer; and

· Expanding our product offerings by adding additional gynecologic bio-analytic solutions involving biomarkers, other modalities (e.g., imaging), clinical risk factors and patient data to aid diagnosis and risk stratification of women presenting with a pelvic mass disease.

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

We terminated our Strategic Alliance Agreement with Quest Diagnostics (the “Strategic Alliance Agreement”) in August 2013.  Prior to the termination of the Strategic Alliance Agreement, Quest Diagnostics had the right to be the exclusive clinical reference laboratory marketplace provider of OVA1 tests in its exclusive territory, which included the United States, Mexico, the United Kingdom and India.  As part of the termination, we agreed that Quest Diagnostics could continue to make OVA1 available to healthcare providers under legacy financial terms following the termination while negotiating in good faith towards an alternative business structure.  Quest Diagnostics disputed the effectiveness of such termination.

On March 11, 2015, we reached a settlement agreement with Quest Diagnostics that terminated all disputes related to the Strategic Alliance Agreement and our prior loan agreement with Quest Diagnostics.  We also entered into a new commercial agreementwith Quest Diagnostics.  Pursuant to this agreement, all OVA1 U.S. testing services for Quest Diagnostics customers were transferred to Vermillion’s wholly-owned subsidiary, ASPiRA LABS, as of August 10, 2015, with the exception of a nominal number of OVA1 tests distributed through Quest Diagnostics after that date. We do not expect Quest Diagnostics to distribute additional tests in the future. Quest Diagnostics is continuing to provide blood draw and logistics support by transporting specimens from its clients to ASPiRA LABS for testing through at least March 11, 2017 in exchange for a market value fee.  Per the terms of the new commercial agreement, we will not offer to existing or future Quest Diagnostics customers CA125-II or other tests that Quest Diagnostics offers.

On March 27, 2015, we announced initial results from a cost-effectiveness analysis study which was presented in a poster at the Annual Meeting of the American College of Medical Quality in Alexandria, Virginia. The study was co-authored by Dr. Robert E. Bristow and Dr. Gareth K. Forde, clinicians at the University of California at Irvine, and Dr. John Hornberger, a leading health economist at Stanford University School of Medicine. The new study, entitled: “Cost Effectiveness Analysis of a Multivariate Index Assay compared to Modified ACOG Criteria and CA-125 in the Triage of Women with Adnexal Masses”, compared the cost-effectiveness of triaging ovarian masses using OVA1 versus two important clinical benchmarks: the CA-125 biomarker and the modified ACOG (American College of Obstetricians and Gynecologists) guideline for ovarian cancer risk assessment (“mod-ACOG”).

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

· Use of OVA1 resulted in fewer projected re-operations and pre-treatment CT scans versus CA 125-II or mod-ACOG,

· OVA1 was QALY-increasing and cost-effective relative to CA 125-II or mod-ACOG,

· ICERs of $12,189/QALY and $35,094/QALY were calculated for OVA1 versus CA 125-II and mod-ACOG, respectively, resulting in a “cost-effective” outcome based on the $50,000 threshold, and

· Relative to the best-practice mod-ACOG benchmark, OVA1 projected an annual increase in patient survival and QALY in excess of 1,000 years, when the surgical cohort was projected to national annual adnexal mass surgeries including about 22,000 new cases of ovarian cancer.

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

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

The abstracts represent the first publication of data from the development of Overa. The data show significant improvement in Overa specificity compared to OVA1, while maintaining strong sensitivity (92% for OVA1 in a 2013 study). Our goal is to launch Overa on an early access basis during 2016.  

Highlights of the abstracts are as follows:

+
Validation Study† (N=493)	OVA1	Overa (MIA2G)	Variance	% Variance
Sensitivity	n.s. (not significantly different)
Specificity	53.6%	69.1%	+15.5%*	+28.9%
Positive predictive value	31.4%	40.4%	+9.0%*	+28.7%
Negative predictive value	n.s. (not significantly different)
False positive rate	46.4%	30.9%	(15.5%)*	(33.4%)
Overall clinical accuracy†	60.9%	73.2%	+12.3%	+20.2%

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

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

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

Critical Accounting Policies and Estimates

Our significant accounting policies are described in Note 1, Basis for Presentation and Summary of Significant Accounting and Reporting Policies, of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K.  The Consolidated Financial Statements are prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Preparation of the financial statements requires us to make judgments, estimates, and assumptions that affect the amounts of assets and liabilities in the financial statements and revenues and expenses during the reporting periods (and related

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disclosures). We believe the policies discussed below are the Company’s critical accounting policies, as they include the more significant, subjective, and complex judgments and estimates made when preparing our consolidated financial statements

Revenue Recognition

Product Revenue.The Company derives product revenues from sales of OVA1 through Quest Diagnostics and ASPiRA LABS.  Product revenues are recognized for tests performed when the following revenue recognition criteria are met: (1) persuasive evidence that 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.

The Company recognizes revenue forcontractual clients as criteria for revenue recognition are met.As the Company has not established sufficient payment history with the insurance companies or private payers for the tests performed at ASPiRA LABS, payment is not fixed or determinable and collectability is not reasonably assured, and we defer recognizing revenues until those criteria are met, which typically coincides with the collection of cash. Once we establish a reliable payment history, we plan to return to normal accrual revenue recognition based on our criteria discussed above.The Company does have certain client bill contracts which meet revenue recognition criteria and thus revenue under such contractsis recognized when the test is performed.

License Revenue.Under the terms of our former secured line of credit with Quest Diagnostics, portions of the borrowed principal amounts were to be forgiven upon our achievement of certain milestones relating to the development, regulatory approval and commercialization of certain diagnostic tests.  We accounted for forgiveness of principal debt balances as license revenues over the term of the exclusive sales period that Quest Diagnostics received upon commercialization of an approved diagnostic test as we did not have a sufficient history of product sales that provided a reasonable basis for estimating future product sales. Through December 31, 2014,we recognized license revenue on a straight-line basis over the original remaining period of Quest Diagnostics’ sales exclusivity ending in September 2015. The disputed exclusivity was formally terminatedwith Quest Diagnostics as part of the March 11, 2015 agreement, and thus the remaining balance of deferred license revenue totaling $315,518 was recognized in the first quarter of 2015.

Research and Development Costs

Research and development costs are expensed as incurred.  Research and development costs consist primarily of payroll and related costs, materials and supplies used in the development of new products, and fees paid to third parties that conduct certain research and development activities on behalf of the Company. In addition, acquisitions of assets to be consumed in research and development, with no alternative future use, are expensed as incurred as research and development costs. Software development costs incurred in the research and development of new products are expensed as incurred until technological feasibility is established.

Patent Costs

              Costs incurred in filing, prosecuting and maintaining patents (principally legal fees) are expensed as incurred and recorded within selling, general and administrative expenses on the consolidated statements of operations.

Stock-Based Compensation

We record the fair value of non-cash stock-based compensation costs for stock options and stock purchase rights related to the 2010 Plan. We estimate the fair value of stock options using a Black-Scholes option valuation model. This model requires the input of subjective assumptions including expected stock price volatility, expected life and estimated forfeitures of each award. We use the straight-line method to amortize the fair value over the vesting period of the award. These assumptions consist of estimates of future market conditions, which are inherently uncertain, and therefore are subject to management's judgment.

The expected life of options is based on historical data of our actual experience with the options we have granted and represents the period of time that the options granted are expected to be outstanding.  This data includes employees’ expected exercise and post-vesting employment termination behaviors.  The expected stock price volatility is estimated using a combination of historical and peer group volatility for a blended volatility in deriving the expected volatility assumption.  We made an assessment that blended volatility is more representative of future stock price trends than just using historical or peer group volatility, which corresponds to the expected life of the options.  The expected dividend yield is based on the estimated annual dividends that we expect to pay over the expected life of the options as a percentage of the market value of our common stock as of the grant date.  The risk-free interest rate for the expected life of the options granted is based on the United States Treasury yield curve in effect as of the grant date.

Contingencies

We account for contingencies in accordance with ASC 450 Contingencies ("ASC 450"). ASC 450 requires that an estimated loss from a loss contingency shall be accrued when information available prior to issuance of the financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and when the amount of the loss can be reasonably estimated. Accounting for contingencies such as legal and contract dispute matters requires us to use our

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judgment. We believe that our accruals for these matters are adequate. Nevertheless, the actual loss from a loss contingency might differ from our estimates.

Income Taxes

We account for income taxes using the liability method.  Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and the tax bases of assets and liabilities using the current tax laws and rates.  A valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized.

Accounting Standard Codification Topic 740-10-50 (“ASC Topic 740-10-50”), “Accounting for Uncertainty in Income Taxes” clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with ASC Topic 740, Income Taxes. ASC Topic 740-10-50 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, and disclosure.

We recognize interest and penalties related to unrecognized tax benefits within the interest expense line and other expense line, respectively, in the consolidated statement of operations. Accrued interest and penalties are included within the related liability lines in the consolidated balance sheet.

Liquidity

On December 23, 2014, the Company completed a private placement pursuant to which certain investors purchased 6,944,445 shares of Vermillion common stock at a price of $1.44 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 $10,288,000 after deducting offering expenses. The warrants became exercisable on June 23, 2015, for 4,166,659 shares of Vermillion common stock at $2.00 per share and expire on December 23, 2017.

On July 17, 2015 the Company completed the sale of 9,602,500 shares of Vermillion common stock, at a price to the public of $1.96 per share, including 1,252,500 shares sold pursuant to the full exercise of the underwriters' option to purchase additional shares, in an underwritten public offering at a price of $1.96 per share. Net proceeds from the offering were approximately $17,495,000 after deducting underwriting discounts and offering expenses.

On March 22, 2016, we entered into an agreement pursuant to which we may borrow up to $4,000,000 from the DECD. Proceeds from the loan are to be utilized primarily to fund the build-out, information technology infrastructure and other costs related to our Trumbull, Connecticut facility and operations. The loan bears interest at a fixed rate of 2.0% per annum and requires equal monthly payments of principal and interest until maturity, which is 10 years from the initial funding date. As security for the loan, we have granted the DECD a blanket security interest in our personal and intellectual property. The DECD’s security interest in our intellectual property may be subordinated to a qualified institutional lender. Under the terms of the agreement, we may be eligible for forgiveness of up to $2,000,000 of the principal amount of the loan if we achievecertain job creation and retention milestones measured by March 1, 2018. If we are unable to meet these job creation milestones within the allotted timeframe or do not maintain our Connecticut operations for a period of 10 years, the DECD may require early repayment of a portion or all of the loan depending on job attainment as compared to the required amount.

Under the Agreement, an initial disbursementof $2,000,000 will be made to us after final State of Connecticut approval and satisfaction of customary closing conditions. The remaining $2,000,000 will be advanced if and when we achieve certain future milestones.

We have incurred significant net losses and negative cash flows from operations since inception, and as a result has an accumulated deficit of approximately $370,588,000 at December 31, 2015. The Company expects to incur a net loss in 2016 and the foreseeable future. The Company’s management believes that successful achievement of the business objectives will require additional financing. The Company expects to raise capital through a variety of sources, which may include the public equity market, private equity financing, collaborative arrangements, licensing arrangements, and/or public or private debt. However, additional funding may not be available when needed or on terms acceptable to the Company. If the Company is unable to obtain additional capital, it may not be able to continue sales and marketing, research and development, or other operations on the scope or scale of current activity and that could have a material adverse effect on the Company’s business, results of operations and financial condition.

There can be no assurance that the Company will achieve or sustain profitability or positive cash flow from operations. However, management believes that the current working capital position as of the date of these financial statements will be sufficient to meet the Company’s working capital needs for at least the next twelve months. Management expects cash from product sales to be the Company’s only material, recurring source of cash in 2016.

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Recent Accounting Pronouncements

Please refer to Note 2 to our consolidated financial statements.

Results of Operations – Year Ended December 31, 2015as compared to Year Ended December 31, 2014

The Company’s selected summary financial and operating data for the years ended December 31, 2015and 2014were as follows:

	Year Ended December 31,				Increase (Decrease)
(dollars in thousands)	2015		2014		Amount		%
Revenue:
Product	$	1,861	$	2,067	$	(206)	(10)
License		316		454		(138)	(30)
Total revenue		2,177		2,521		(344)	(14)
Cost of revenue:
Product		2,309		1,230		1,079	88
Gross profit (loss)		(132)		1,291		(1,423)	(110)
Operating expenses:
Research and development		3,751		4,667		(916)	(20)
Sales and marketing		9,833		9,893		(60)	(1)
General and administrative		5,533		5,942		(409)	(7)
Total operating expenses		19,117		20,502		(1,385)	(7)
Loss from operations		(19,249)		(19,211)		(38)	0
Interest income		28		40		(12)	(30)
Other income (expense), net		106		(38)		144	(379)
Loss before income taxes		(19,115)		(19,209)		94	(0)
Income tax benefit (expense)		-		-		-	-
Net loss	$	(19,115)	$	(19,209)	$	94	(0)

Product Revenue.  Product revenue was $1,861,000 for the year ended December 31, 2015compared to $2,067,000 for the same period in 2014.  As a result of our March 11, 2015 agreement with Quest Diagnostics, we realized product revenue for tests performed by Quest Diagnostics after January 1, 2015 at the time the OVA1 test is performedat a $125.35 fixed fee per test.  For the year ended December 31, 2014, we recognized product revenue for the sale of OVA1 through Quest Diagnostics at a $50 fixed fee per test plus a variable gross margin based royalty per test. This variable royalty totaled $1,227,000 in 2014and was recognized upon receipt of an annual royalty report from Quest Diagnostics.  The variable royalty component totaled approximately $75per test.

Revenue for ASPiRA LABS contractual clients is being recognized when the OVA1 test is being performed. All other ASPiRA LABS revenue is being recognized on a  cash basis and thus recognition of revenue lags the performance of an OVA1 test. Virtually all OVA1 tests have been performed at ASPiRA LABS once the August 10, 2015 cutover date from Quest Diagnostics.

Our total OVA1 volume was 13,598 for 2015. This was comprised of 8,937 tests performed by Quest Diagnostics and 4,661 OVA1 tests performed by ASPiRA LABS.  Our total OVA1 volume was 16,839 for 2014. This was comprised of 16,427tests performed by Quest Diagnostics and 412 OVA1 tests performed by ASPiRA LABS.  The decrease in volume from 2014 to 2015 was due primarily to the transition of OVA1 testing from Quest Diagnostics to ASPiRA LABS. Revenue decreased in 2015 compared to 2014 due to the overall decrease in OVA1 volume as well as the lag in revenue recognition for OVA1 tests being recognized on the cash basis of accounting.

License Revenue.  There was $316,000 of license revenue recognized for the year ended December 31, 2015 compared to $454,000 for the same period in 2014. License revenue decreased in 2015 compared to 2014 as all remaining deferred revenue was recognized during 2015. We do not expect to recognize any license revenue in future periods.

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Cost of Revenue. Cost of product revenue for the year ended December 31, 2015 increased $1,079,000  or 88% compared to the same period in 2014.  Cost of product revenue for the year ended December 31, 2015 includes costs associated with processing the full volume of OVA1 tests at ASPiRA LABS after the cutover of volume from Quest Diagnostics to ASPiRA LABS on August 10, 2015. The increase in cost of revenue in 2015 compared to 2014 is due to ASPiRA LABS processing 4,661 OVA1 tests in 2015 compared to 412 in 2014.

Research and Development Expenses.  Research and development expenses represent costs incurred to develop our technology and carry out clinical studies, and include personnel-related expenses, regulatory costs, reagents and supplies used in research and development laboratory work, infrastructure expenses, contract services and other outside costs.  Research and development expenses also include costs related to activities performed under contracts with our collaborators and strategic partners. Research and development expenses decreased by $916,000, or 20%, for the year ended December 31, 2015compared to the same period in 2014.  This decrease was mainly due to decreases in collaborations,  clinical trials, and consulting as the development work on Overa was substantially completed in 2014.These decreases were partially offset by increases in personnel and related expenses due to increased headcount in preparation for continued product pipeline development and investment in our new pelvic mass registry.  

Sales and Marketing Expenses.  Our sales and marketing expenses consist primarily of personnel-related expenses, education and promotional expenses, and infrastructure expenses.  These expenses include the costs of educating physicians, laboratory personnel and other healthcare professionals regarding OVA1. Sales and marketing expenses also include the costs of sponsoring continuing medical education, medical meeting participation and dissemination of scientific and health economic publications. Our personnel-related expenses include the cost of our field sales force, the subject matter experts responsible for market development. Sales and marketing expenses decreased by $60,000, or 1%, for the year ended December 31, 2015 compared to the same period in 2014. The decrease was primarily due to decreases in outside services and consulting which were mostly offset by increases in personnel costs due to increased headcount.We expect sales and marketing expenses to decrease in future periods due to lower headcount expected in 2016.

General and Administrative Expenses.  General and administrative expenses consist primarily of personnel-related expenses, professional fees and other costs, including legal, finance and accounting expenses, and other infrastructure expenses. General and administrative expenses decreased by $409,000, or 7%, for the year ended December 31, 2015compared to the same period in 2014.  The change was primarily due to start-up costs for ASPiRA LABS incurred in 2014 prior to the June 2014 opening of ASPiRA LABS not being repeated in 2015.

Liquidity and Capital Resources

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

On December23, 2014,  the Company completed a private placement pursuant to which certain investors purchased 6,944,445 shares of Vermillion common stock at a price of $1.44  per share. Vermillion also issued warrants to purchase shares of common stock at a price of $0.125per warrant share in the private placement. The proceeds of the private placement were $10,521,000 (net proceeds of approximately $10,281,000 after deducting offering expenses incurred through December 31, 2014). The warrants becameexercisableon June 23, 2015, for 4,166,659 shares of Vermillion common stock at $2.00 per share and expire on December 23, 2017.  

On July 17, 2015 we completed the sale of 9,602,500 shares of Vermillion common stock, at a price to the public of $1.96 per share, including 1,252,500 shares sold pursuant to the full exercise of the underwriters' option to purchase additional shares, in an underwritten public offering at a price of $1.96 per share. Net proceeds from the offering were approximately $17,495,000 after deducting underwriting discounts and offering expenses.

On March 22, 2016, we entered into an agreement pursuant to which we may borrow up to $4,000,000 from the DECD.  Proceeds from the loan are to be utilized primarily to fund the build-out, information technology infrastructure and other costs related to our Trumbull, Connecticut facility and operations.  The loan bears interest at a fixed rate of 2.0% per annum and requires equal monthly payments of principal and interest until maturity, which is 10 years from the initial funding date.  As security for the loan, we have granted the DECDa blanket security interest in our personal and intellectual property.  The DECD’s security interest in our intellectual property may be subordinated to a qualified institutional lender.  Under the terms of the agreement, we may be eligible for forgiveness of up to $2,000,000 of the principal amount of the loan if we achievecertain job creation and retention milestones measured by March 1, 2018.  If we are unable to meet these job creation milestones within the allotted timeframe or do not maintain our Connecticut operations for a period of 10 years, the DECD may require early repayment of a portion or all of the loan depending on job attainment as compared to the required amount.

Under the Agreement, an initial disbursement of $2,000,000 will be made to usafter final State of Connecticut approval and satisfaction of customary closing conditions.  The remaining $2,000,000 will be advanced if and when weachieve certain future milestones.

The Company hasincurred significant net losses and negative cash flows from operations since inception.  At December 31, 2015, we had an accumulated deficit of $370,588,000 and stockholders' equity of $17,546,000.  On December 31, 2015, we had

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$18,642,000 of cash and cash equivalents and $3,351,000 of current liabilities. The Company expects to incur a net loss in 2016 and the foreseeable future.

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 with the addition of ASPiRA LABS, there is no assurance of our ability to generate substantial revenues and cash flows from ASPiRA LABS’ operations. We expect cash from our products to be our only material, recurring source of cash in 2016.

Our management believes that our current working capital as of December 31, 2015 will be sufficient to meet the Company’s working capital needs for at least the next twelve months. However, our management also believes that the successful achievement of our business objectives will require additional financing. We expect to raise capital through a variety of sources, which may include the public equity market, private equity financing, collaborative arrangements, licensing arrangements, and public or private debt.

Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants and potential dilution to stockholders. If we obtain additional funds through arrangements with collaborators or strategic partners, we may be required to relinquish our rights to certain technologies or products that we might otherwise seek to retain. Additional funding may not be available when needed or on terms acceptable to us. If we are unable to obtain additional capital, we may not be able to continue our sales and marketing, research and development, or other operations on the scope or scale of current activity, and that could have a material adverse effect on the business, financial condition and results of operations.

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

· resources devoted to establish sales, marketing and distribution capabilities;

· the rate of product adoption by physicians and patients;

· our plans to acquire or invest in other products, technologies and businesses;

· the market price of our common stock;

· the successful launch of OVERA;  and

· the insurance payer community's acceptance of and reimbursement for OVA1 and/or OVERA.

Cash and cash equivalents as of December 31, 2015and December 31, 2014were  $18,642,000 and  $22,965,000, respectively.  At December 31, 2015and 2014, working capital was $16,015,000 and $18,747,000, respectively.

Net cash used in operating activities was $18,365,000 for the year ended December 31, 2015, resulting primarily from $19,115,000 net loss incurred as adjusted for non-cash license revenues of $316,000,  partially offset by$1,227,000 of stock-based compensation expense. Net cash used in operating activities also included $415,000 of cash used from changes in operating assets and liabilities and primarily from decreases in deferred revenue and accounts payable.

Net cash used in operating activities was $16,808,000 for the year ended December 31, 2014, resulting primarily from $19,209,000 net loss incurred as adjusted for non-cash license revenues of $454,000,  partially offset by$1,149,000 of stock-based compensation expense. Net cash used in operating activities also included $1,543,000 of cash used from changes in operating assets and liabilities and primarily from increases in accounts payable and accrued liabilities.

Net cash used in investing activities was $1,055,000 for the year ended December 31, 2015due to purchases of computer equipment and software, machinery and equipment and construction in progress.Construction spending will continue in 2016.  Net cash used in investing activities was $258,000 for the year ended December 31, 2014 due to equipment and software purchases for ASPiRA LABS as well as computer purchases.

Net cash provided by financing activities was $15,097,000 for the year ended December 31, 2015 due to receipt of $17,495,000in July 2015 from our follow on public offering of common stock, partially offset by the repurchase of common stock from Quest Diagnostics in the amount of $1,291,000, the repayment of short-term debt of $1,069,000 to Quest Diagnostics and $122,000 of offering expenses relating to our December 2014 private placement.

Net cash provided by financing activities was $10,527,000 for the year ended December 31, 2014 due to receipt of $10,288,000 of net proceeds from the sale of common stock and $239,000 in proceeds from the exercise of stock options.

Off-Balance Sheet Arrangements

As of December 31, 2015,  we had no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

ITEM 7A.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Pursuant to Item 305(e) of Regulation S-K, the information called for by Item 7A is not required.

37

ITEM 8.            FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements, including consolidated balance sheets as of December 31, 2015and 2014,  consolidated statements of operationsfor the years ended December 31, 2015and 2014, consolidated statements of changes in stockholders’ equityfor the years ended December 31,2015and 2014, consolidated statements of cash flows for the years ended December 31, 2015and 2014and notes to our consolidated financial statements, together with a  report thereon of our independent registered public accounting firm are attached hereto as pages F-1 through F-19.

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports 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 regulations, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosure.

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act, as of December 31, 2015. 

Based on that evaluation, our Chief Executive Officer and Chief Accounting Officer have concluded that as of December 31, 2015,our disclosure controls and procedures, as defined in Rule13a-15(e) and Rule 15(d)-15(e) under the Exchange Act, were effective.

Management Reporton Internal Control over Financial Reporting

We are responsible for establishing and maintaining adequate internal control over our financial reporting. We have assessed the effectiveness of internal control over financial reporting as of December 31, 2015. Our assessment was based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, entitled “Internal Control-Integrated Framework  (2013).”

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and board of directors; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on using the COSO criteria, management concluded our internal control over financial reporting as of December 31, 2015was effective.

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.   Management’s assessment of the effectiveness of our internal control over financial reporting as of December31, 2015, was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit a smaller reporting company to provide only management’s report in the Company’s Annual Report on Form 10-K.

38

Changes in internal control over financial reporting.

There was no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2015that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.        OTHER INFORMATION

None.

39

PART III

ITEM 10.         DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information regarding our directors, committees of our Board of Directors, our director nomination process, and our executive officers appearing under the heading "Information Regarding the Board of Directors, Committees and Corporate Governance," "Management" and "Section 16(a) Beneficial Ownership Reporting Compliance,"of our proxy statement relating to our 2016Annual Meeting of Stockholders to be held in2016(the “2016Proxy Statement”) is incorporated by reference.

Our code of ethics is applicable to all employees, including both our Chief Executive Officer,Principal Financial Officer and Controller.  This code of ethics is publicly available on our website at www.vermillion.com. 

ITEM 11.         EXECUTIVE COMPENSATION

The information appearing under the headings "Board Compensation," "Compensation Discussion and Analysis,"  "Executive Officer Compensation," "Corporate Governance – Compensation Committee Interlocks and Insider Participation" and "Report of the Compensation Committee" of the 2016Proxy Statement is incorporated by reference.

ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information appearing under the heading “Security Ownership of Certain Beneficial Owners and Management” of the 2016Proxy Statement is incorporated by reference.

See the description regarding our equity compensation plans contained in Item 5 of this Form 10-K and in the notes to our financial statements, attached hereto.

ITEM 13.         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information appearing under the heading “Certain Relationships and Related Transactions” and "Information Regarding the Board of Directors, Committees and Corporate Governance" of the 2016Proxy Statement is incorporated by reference.

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information appearing under the heading “Ratification of the Selection of the Independent Registered Public Accounting Firm for Vermillion” of the 2016Proxy Statement is incorporated by reference.

PART IV

ITEM 15.          EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)LIST OF DOCUMENTS FILED AS PART OF THIS REPORT:

1. Financial Statements

The financial statements and notes thereto, and the report of the independent registered public accounting firm thereon, are set forth on pages F-1 through F-19.

2. Exhibits

The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K.

40

VERMILLION, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page No.
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets at December 31, 2015 and 2014	F-2
Consolidated Statements of Operations for the years ended
December 31, 2015 and 2014	F-3
Consolidated Statements of Changes in Stockholders’ Equity for the years ended
December 31, 2015 and 2014	F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2015 and 2014	F-5
Notes to Consolidated Financial Statements	F-6

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Vermillion, Inc.

Austin, Texas

We have audited the accompanying consolidated balance sheets of Vermillion, Inc. as of December 31, 2015 and 2014 and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Vermillion, Inc.  at December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO USA, LLP

Austin, Texas

March 30,  2016

1

Vermillion, Inc.

Consolidated Balance Sheets

(Amounts in Thousands, Except Share and Par Value Amounts)

	December 31,
	2015		2014
Assets
Current assets:
Cash and cash equivalents	$	18,642	$	22,965
Accounts receivable		87		167
Prepaid expenses and other current assets		550		534
Inventories		87		-
Total current assets		19,366		23,666
Property and equipment, net		1,504		508
Other Assets		90		-
Total assets	$	20,960	$	24,174
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	988	$	1,123
Accrued liabilities		2,208		2,201
Short-term debt		-		1,106
Deferred revenue		-		489
Other Current Liabilities		155		-
Total current liabilities		3,351		4,919
Lease obligation - long term		63		-
Total liabilities		3,414		4,919
Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding at December 31, 2015 and 2014		-		-
Common stock, $0.001 par value, 150,000,000 shares authorized; 52,113,059 and 43,115,790 shares issued and outstanding at December 31, 2015 and 2014, respectively		52		43
Additional paid-in capital		388,082		370,685
Accumulated deficit		(370,588)		(351,473)
Total stockholders’ equity		17,546		19,255
Total liabilities and stockholders’ equity	$	20,960	$	24,174

See accompanying Notes to Consolidated Financial Statements

F-2

Vermillion, Inc.

Consolidated Statements of Operations

(Amounts in Thousands, Except Share and Per Share Amounts)

	Year Ended December 31,
	2015		2014
Revenue:
Product	$	1,861	$	2,067
License		316		454
Total revenue		2,177		2,521
Cost of revenue:
Product(1)		2,309		1,230
Gross profit (loss)		(132)		1,291
Operating expenses:
Research and development(2)		3,751		4,667
Sales and marketing(3)		9,833		9,893
General and administrative(4)		5,533		5,942
Total operating expenses		19,117		20,502
Loss from operations		(19,249)		(19,211)
Interest income		28		40
Other income (expense), net		106		(38)
Loss before income taxes		(19,115)		(19,209)
Income tax benefit (expense)		-		-
Net loss	$	(19,115)	$	(19,209)
Net loss per share - basic and diluted	$	(0.41)	$	(0.53)
Weighted average common shares used to compute basic and diluted net loss per common share		47,124,261		36,082,414
Non-cash stock-based compensation expense included in expenses:
(1) Cost of revenue	$	40	$	1
(2) Research and development		137		136
(3) Sales and marketing		209		259
(4) General and administrative		841		775

See accompanying Notes to Consolidated Financial Statements

F-3

Vermillion, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

(Amounts in Thousands, Except Share Amounts)

	Common Stock
	Shares		Amount		Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Equity
Balance at December 31, 2013	35,825,673	$	36	$	358,994	$	(332,264)	$	26,766
Net loss	-		-		-		(19,209)		(19,209)
Common stock and warrants issued in conjunction with private placement sale, net of issuance costs	6,944,445		7		10,281		-		10,288
Common stock offering  - at-the-market (ATM)	48,473		-		-		-		-
Common stock issued in conjunction with exercise of stock options	178,699		-		239		-		239
Common stock issued for restricted stock awards	118,500		-		351		-		351
Warrants issued for services	-		-		22		-		22
Stock compensation charge	-		-		798		-		798
Balance at December 31, 2014	43,115,790		43		370,685		(351,473)		19,255
Net loss	-		-		-		(19,115)		(19,115)
Common stock issued in conjunction with follow-on public offering, net of issuance costs	9,602,500		10		17,363		-		17,373
Common stock issued in conjunction with exercise of stock options	59,583		-		97		-		97
Common stock issued for restricted stock awards	195,781		-		401		-		401
Stock compensation charge	-		-		826		-		826
Repurchase of common stock	(860,595)		(1)		(1,290)		-		(1,291)
Balance at December 31, 2015	52,113,059	$	52	$	388,082	$	(370,588)	$	17,546

See accompanying Notes to Consolidated Financial Statements

F-4

Vermillion, Inc.

Consolidated Statements of Cash Flows

(Amounts in Thousands)

	Year Ended December 31,
	2015		2014
Cash flows from operating activities:
Net loss	$	(19,115)	$	(19,209)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on extinguishment of debt		(37)		-
Non-cash license revenue		(316)		(454)
Depreciation and amortization		291		141
Stock-based compensation expense		1,227		1,149
Warrants issued for services		-		22
Changes in operating assets and liabilities:
Accounts receivable		80		206
Prepaid expenses and other assets		(106)		(162)
Inventories		(87)		-
Accounts payable, accrued liabilities and other liabilities		(129)		1,500
Deferred revenue		(173)		(1)
Net cash used in operating activities		(18,365)		(16,808)
Cash flows from investing activities:
Purchase of property and equipment		(282)		(258)
Construction in progress		(773)		-
Net cash used in investing activities		(1,055)		(258)
Cash flows from financing activities:
Proceeds from private placement offering of common stock, net of issuance costs		-		10,288
Repayment of capital lease obligations		(13)		-
Repurchase of Quest Diagnostics common stock		(1,291)		-
Issuance costs related to 2014 private placement		(122)		-
Proceeds from public offering of common stock, net of issuance costs		17,495		-
Proceeds from issuance of common stock from exercise of stock options		97		239
Repayment of short-term debt		(1,069)		-
Net cash provided by financing activities		15,097		10,527
Net decrease in cash and cash equivalents		(4,323)		(6,539)
Cash and cash equivalents, beginning of year		22,965		29,504
Cash and cash equivalents, end of year	$	18,642	$	22,965
Supplemental disclosure of cash flow information:
Cash paid during the period for interest		7		-
Supplemental disclosure of noncash investing and financing activities:
Equipment acquired through capital lease agreements		107		-
Changes in other current liabilities related to equipment		125		-

See accompanying Notes to Consolidated Financial Statements

F-5

Vermillion, Inc.

Notes to Consolidated Financial Statements

NOTE 1:Basis of Presentation and Summary of Significant Accounting and Reporting Policies

Organization

Vermillion, Inc. (“Vermillion”; Vermillion and its wholly-owned subsidiaries are collectively referred to as the “Company”) is incorporated in the state of Delaware, and is engaged in the business of developing and commercializing diagnostic tests for gynecologic disease.  The Company sellsOVA1™ risk of malignancy test for pelvic mass disease (“OVA1”). Until August 10, 2015, the Company distributed OVA1 through Quest Diagnostics Incorporated (“Quest Diagnostics”) (see Note 3). Since August 10, 2015, the Company has distributed all but a nominal number of OVA1 tests through Vermillion’s wholly-owned Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) certified clinical laboratory, ASPiRA LABS, Inc. (“ASPiRA LABS”), which opened in June 2014.

Liquidity

On December 23, 2014, the Company completed a private placement pursuant to which certain investors purchased 6,944,445 shares of Vermillion common stock at a price of $1.44 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 $10,288,000 after deducting offering expenses. The warrants areexercisable for 4,166,659 shares of Vermillion common stock at $2.00 per share and expire on December 23, 2017.

On July 17, 2015 the Company completed the sale of 9,602,500 shares of Vermillion common stock, at a price to the public of $1.96 per share, including 1,252,500 shares sold pursuant to the full exercise of the underwriters' option to purchase additional shares, in an underwritten public offering at a price of $1.96 per share. Net proceeds from the offering were approximately $17,495,000 after deducting underwriting discounts and offering expenses.

As discussed in Note 6, on March 22, 2016, the Company entered into an agreement pursuant to which it may borrow up to $4,000,000 from the State of Connecticut Department of Economic and Community Development (“DECD”). Initial gross proceeds of $2,000,000 are due after final State of Connecticut approval and satisfaction of customary closing conditions.  The remaining $2,000,000 will be advanced if and when the Company achieves certain future milestones.

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 $370,588,000 at December 31, 2015. The Company expects to incur a net loss in 2016 and the foreseeable future. The Company’s management believes that successful achievement of the business objectives will require additional financing.  The Company expects to raise capital through a variety of sources, which may include the public equity market, private equity financing, collaborative arrangements, licensing arrangements, and/or public or private debt. However, additional funding may not be available when needed or on terms acceptable to the Company. If the Company is unable to obtain additional capital, it may not be able to continue sales and marketing, research and development, or other operations on the scope or scale of current activity and that could have a material adverse effect on the business, results of operations and financial condition.

There can be no assurance that the Company will achieve or sustain profitability or positive cash flow from operations.  However, management believes that the current working capital position as of the date of these financial statements will be sufficient to meet the Company’s working capital needs for at least the next twelve months. Management expects cash from product sales to be the Company’s only material, recurring source of cash in 2016.

Basis of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.  All intercompany transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  The primary estimates underlying the Company’s consolidated financial statements include assumptions regarding variables used in calculating the fair value of the Company’s equity awards, income taxes and contingent liabilities.  Actual results could differ from those estimates.

F-6

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments with maturities of three months or less from the date of purchase, which are readily convertible into known amounts of cash and are so near to their maturity that they present an insignificant risk of changes in value because of interest rate changes.  Highly liquid investments that are considered cash equivalents include money market funds, certificates of deposits, treasury bills and commercial paper.  The carrying value of cash equivalents approximates fair value due to the short-term maturity of these securities.

Fair Value Measurement

Accounting Standards Codification (“ASC”)Topic 820,Fair Value and Measurements (“ASC 820”), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents and accounts receivable.  The Company maintains cash and cash equivalents in recognized financial institutions in the United States.  The funds are insured by the FDIC up to a maximum of $250,000, but are otherwise unprotected.  The Company has not experienced any losses associated with deposits of cash and cash equivalents. The Company does not invest in derivative instruments or engage in hedging activities.

Accounts receivable

Accounts receivable are derived from sales made to customers located in North America.  The Company performs ongoing credit evaluations of its customer’s financial condition and generally does not require collateral.  The Company maintains an allowance for doubtful accounts based upon the expected collectability of accounts receivable.  Accounts receivable at December 31, 2015 was from 14customers.  Accounts receivable at December 31, 2014 was from one customer.

Property and Equipment

Property and equipment are carried at cost less accumulated depreciation and amortization. Property and equipment are depreciated when placed into service using the straight-line method over the estimated useful lives, generally three to five years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the remaining term of the lease. Maintenance and repairs are charged to operations as incurred. Upon sale or retirement of assets, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operations.

Property and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.  If property and equipment are considered to be impaired, an impairment loss is recognized.

Revenue Recognition

Product Revenue:  The Company derives product revenues from sales of OVA1 through Quest Diagnosticsand ASPiRA LABS.  Product revenues are recognized for tests performed when the following revenue recognition criteria are met: (1) persuasiveevidence that 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.

Revenue for contractual clients is being recognized when the OVA1 test is being performed as criteria for revenue recognition has been met. As the Company has not established sufficient payment history with the insurance companies or private payers for the tests performed at ASPiRALABS, payment is not fixed or determinable and collectability is not reasonably assured,

F-7

and it will not recognize revenue until those criteria are met, which typically coincides with the collection of cash.  All costs incurred for tests performed at ASPiRA LABSare expensed as incurred. Once the Company establishes a reliable payment history, it plans to return to normal accrual revenue recognition based on its criteria discussed above.

License Revenue:  Under the terms of the secured line of credit with Quest Diagnostics, which was terminated on March 11, 2015, portions of the borrowed principal amounts were forgiven upon achievement of certain milestones relating to the development, regulatory approval and commercialization of certain diagnostic tests (see Note 3).  The Company accounted for forgiveness of principal debt balances as license revenues over the term of the exclusive sales period that Quest Diagnostics received upon commercialization of an approved diagnostic test as the Company did not have a sufficient history of product sales that provided a reasonable basis for estimating future product sales. License revenue was recognized on a straight-line basis over the original remaining period of Quest Diagnostics’ sales exclusivity ending in September 2015. The disputed exclusivity was formally terminated with Quest Diagnostics on March 11, 2015, and thus the remaining balance of deferred license revenue totaling $316,000was recognized as of that date.

Research and Development Costs

Research and development costs are expensed as incurred.  Research and development costs consist primarily of payroll and related costs, materials and supplies used in the development of new products, and fees paid to third parties that conduct certain research and development activities on the Company’s behalf. In addition, acquisitions of assets to be consumed in research and development are expensed as incurred as research and development costs. Software development costs incurred in the research and development of new products are expensed as incurred until technological feasibility is established.

Patent Costs

Costs incurred in filing, prosecuting and maintaining patents (principally legal fees) are expensed as incurred and recorded within selling, general and administrative expenses on the Consolidated Statements of Operations. Such costs aggregated approximately $215,000 and $380,000 for the years ended December 31, 2015 and 2014, respectively.

Stock-Based Compensation

The Company records the fair value of non-cash stock-based compensation costs for stock options and stock purchase rights related to the Amended and Restated 2010 Stock Incentive Plan, as amended (the “2010 Plan”). The Company estimates the fair value of stock options using a Black-Scholes option valuation model which requires the input of subjective assumptions including expected stock price volatility, expected life and estimated forfeitures of each award. These assumptions consist of estimates of future market conditions, which are inherently uncertain, and therefore are subject to management's judgment.

The expected life of options is based on historical data of actual experience with the options granted and represents the period of time that the options granted are expected to be outstanding.  This data includes employees’ expected exercise and post-vesting employment termination behaviors.  The expected stock price volatility is estimated using a combination of historical and peer group volatility for a blended volatility in deriving the expected volatility assumption.  The Company made an assessment that blended volatility is more representative of future stock price trends than just using historical or peer group volatility, which corresponds to the expected life of the options.  The expected dividend yield is based on the estimated annual dividends that is expected to be paid over the expected life of the options as a percentage of the market value of Vermillion common stock as of the grant date.  The risk-free interest rate for the expected life of the options granted is based on the United States Treasury yield curve in effect as of the grant date.  The Company uses the straight-line method to amortize the fair value over the vesting period of the award.

The Company also records the fair value of non-cash stock-based compensation costs for equity instruments issued to non-employees. The cost for these options is recalculated each reporting period using a Black-Scholes option valuation model. A change in assumptions used in the calculations, including changes in the fair value of common stock, can result in significant changes in the amounts recorded from one reporting period to another.

Contingencies

The Company accounts for contingencies in accordance with ASC 450 Contingencies ("ASC 450") which requires that an estimated loss from a loss contingency be accrued when (i) information available prior to issuance of the financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and (ii) when the amount of the loss can be reasonably estimated. Accounting for contingencies such as legal and contract dispute matters requires the use of management’s judgment. Management believes that the Company’s accruals for these matters are adequate. Nevertheless, the actual loss from a loss contingency might differ from management’s estimates.

F-8

Income Taxes

The Company accounts for income taxes using the liability method.  Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and the tax bases of assets and liabilities using the current tax laws and rates. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized.

ASC Topic 740, Income Taxes clarifies the accounting for uncertainty in income taxes recognized in the financial statements and provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, and disclosure.

The Company recognizes interest and penalties related to unrecognized tax benefits within the interest expense line and other expense line, respectively, in the Consolidated Statements of Operations. Accrued interest and penalties are included within the related liability lines in the Consolidated Balance Sheets.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of common stock adjusted for the dilutive effect of common stock equivalent shares outstanding during the period.  Common stock equivalents consist of stock options, restricted stock units and stock warrants. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect on earnings per share.

Fair Value of Financial Instruments

Financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and short-term debt. The estimated fair value of financial instruments has been determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value; therefore, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. The effect of using different market assumptions and/or estimation methodologies may be material to the estimated fair value amounts. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and short-term debt are at cost, which approximates fair value due to the short maturity of those instruments.

Segment Reporting

The Company operates one reportable segment.

NOTE 2:Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the “FASB”)issued ASU 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of the pending adoption of the new standard on the consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11 Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU No. 2015-11”). ASU 2015-11 changes the measurement of inventory from the lower of cost or market to the lower of cost and net realizable value. The amendments are effective prospectively for the fiscal years, and interim reporting periods within those years, beginning on or after December 15, 2016. The Company does not anticipate a material impact on its consolidated financial statements from the adoption of this ASU.

F-9

In August 2014, the FASB issued ASU No. 2014-15,Presentation of Financial Statements – Going Concern (“ASU 2014-15”).  This ASU explicitly requires management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. In connection with each annual and interim period, management will assess if there is substantial doubt about an entity’s ability to continue as a going concern within one year after the issuance date. Management will consider relevant conditions that are known, and reasonably knowable, at the issuance date. Substantial doubt exists if it is probable that the entity will be unable to meet its obligations within one year after the issuance date. Disclosures will be required if conditions give rise to substantial doubt. The new standard will be effective for all entities in the first annual period ending after December15, 2016. Early adoption is permitted. Upon adoption management will evaluate the Company’s ability to continue as a going concern based on this guidance.

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

NOTE 3:Strategic Alliance And Secured Line Of Credit with Quest Diagnostics Incorporated

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

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

On March 11, 2015, the Company reached a settlement agreement with Quest Diagnostics that terminated all disputes related to the Strategic Alliance Agreement and the Company’s prior loan agreement with Quest Diagnostics. The Company also entered into a new commercial agreement with Quest Diagnostics. Pursuant to this agreement, all OVA1 U.S. testing services for Quest Diagnostics customers were transferred to Vermillion’s wholly-owned subsidiary, ASPiRA LABS, as of August 10, 2015, with the exception of a nominal number of OVA1 tests distributed through Quest Diagnostics after that date. Quest Diagnostics is continuing to provide blood draw and logistics support by transporting specimens from its clients to ASPiRA LABS for testing through at least March 11, 2017 in exchange for a market value fee. Per the terms of the new commercial agreement, the Company will not offer to existing or future Quest Diagnostics customers CA 125-II or other tests that Quest Diagnostics offers.

F-10

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

Accounts receivable from Quest Diagnostics totaled $1,000 and $167,000 at December 31, 2015and 2014, respectively.

Note 4:       Property and Equipment

The components of property and equipment as of December 31, 2015and 2014were as follows:

	December 31,
(in thousands)		2015		2014
Machinery and equipment	$	841	$	563
Demonstration equipment		39		38
Computer equipment and software		428		291
Furniture and fixtures		41		68
Leasehold improvements		36		-
Construction in progress		773		-
Gross property and equipment		2,158		960
Accumulated depreciation and amortization		(654)		(452)
Property and equipment, net	$	1,504	$	508

Depreciation expense for property and equipment was $291,000 and $141,000 for the years ended December 31, 2015 and 2014, respectively. The accumulated amortization of assets under capital lease obligations was $39,000 and the net book value of assets under capital lease obligations was $193,000 as of December 31, 2015. There were no assets under capital lease obligations as of December 31, 2014.

Construction in progress represented $289,000 in leasehold improvements and $484,000 in information technology build-out at our Trumbull, Connecticut facility. The facility was occupied and in operation beginning in January 2016. Proceeds from the DECD development loan (discussed in Note 6)  will be used for the Trumbull, Connecticut facility.

NOTE 5:Accrued Liabilities

The components of accrued liabilities as of December31, 2015 and 2014were as follows:

	December 31,
(in thousands)	2015		2014
Payroll and benefits related expenses	$	798	$	905
Collaboration and research agreements expenses		339		338
Professional services		717		598
Tax-related liabilities		40		23
Other accrued liabilities		314		337
Total accrued liabilities	$	2,208	$	2,201

F-11

NOTE 6:Commitments and Contingencies

As of December 31, 2015, the annual amounts of future minimum payments under certain of the Company’s contractual obligations were:

		Payments Due by Period
(in thousands)		Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Operating Leases	$	804	$	212	$	292	$	246	$	54
Capital Leases		475		322		143		10		-
Collaboration Costs		125		125		-		-		-
Total accrued liabilities	$	1,404	$	659	$	435	$	256	$	54

In addition, the Company has minimum royalty obligations (described below in non-cancelable collaboration obligations and other commitments) and minimum quantities of reagent purchases from the manufacturer of certain laboratory instruments.

Development Loan

On March 22, 2016, the Company entered into an agreement (the “Agreement”) with the DECD, pursuant to which the Company may borrow up to $4,000,000 from the DECD.  Proceeds from the loan are to be utilized primarily to fund the build-out, information technology infrastructure and other costs related to the Company’s Trumbull, Connecticut facility and operations.  The loan bears interest at a fixed rate of 2.0% per annum and requires equal monthly payments of principal and interest until maturity, which is 10 years from the initial funding date.  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 Agreement, the Company may be eligible for forgiveness of up to $2,000,000 of the principal amount of the loan if the Company achieves certain job creation and retention milestones by March 1, 2018.  If the Company is unable to meet these job creation milestones within the allotted timeframe or does not maintain the Company’s Connecticut operations for a period of 10 years, the DECD may require early repayment of a portion or all of the loan depending on job attainment as compared to the required amount.

Under the Agreement, an initial disbursement of $2,000,000 will be made to the Company after final State of Connecticut approval and satisfaction of customary closing conditions.  The Agreement provides that the remaining $2,000,000 will be advanced if and when the Company achievescertain future milestones. The loan may be prepaid at any time without premium or penalty.

Operating Leases

The Company leases facilities to support its business of discovering, developing and commercializing diagnostic tests in the fields of gynecologic disease, including its principal facility and CLIA laboratory located in Austin, Texas.  As of December 31, 2015 there were threeAustin, Texas leases which included an aggregate annual base rent of $131,000 and annual estimated common area charges, taxes and insurance of $62,000.  The lease which includes the CLIA laboratory expires on May 31, 2017 and anadditional lease ismonth to month and requires90 days’ notice to cancel.  The Company exited the third lease on February 29, 2016.

In October 2015, the Company entered a lease agreement for a facility in Trumbull, Connecticut.  The lease includes initial payments for the buildout of leasehold improvements to the office space, which are estimated to be approximately $438,000. The term of the lease is five years beginning after the initial date of occupancy in January 2016 and a rent abatement period of fivemonths. The lease includes an aggregate annual base rent of $32,000and annual estimated common area charges, taxes and insurance of $91,000.Rental expense under operating leases for the years ended December 31, 2015and 2014totaled $190,000and $130,000, respectively.

Capital Lease

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

F-12

The accumulated amortization of assets under capital lease obligations was $39,000 and the net book value of assets under capital lease obligations was $193,000 as of December 31, 2015. There were no assets under capital lease obligations as of December 31, 2014.

Non-cancelable Collaboration Obligations and Other Commitments

The Companyhas a research collaboration agreement with The Johns Hopkins University School of Medicine (“JHU”) 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. This agreement expires on March 31, 2016.  Collaboration expenses under the JHU collaboration were $600,000 and $1,323,000 for the years ended December 31, 2015and 2014, respectively.  Collaboration expenses under the JHU collaboration are included in research and development expenses.  In addition, 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 expensefor the years ended December 31, 2015 and 2014 totaled $74,000and $83,000, respectively.

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 adverse outcome of which would have a material adverse effect on the Company’s financial position or results of operations.

NOTE 7:Common Stock

2015 Registered Offering

On July 17, 2015 the Company completed the sale of 9,602,500 shares of Vermillion common stock, including 1,252,500 shares sold pursuant to the full exercise of the underwriters' option to purchase additional shares, in an underwritten public offering at a price of $1.96 per share. The Company received net proceeds from the offering of $17,495,000 after deducting underwriting discounts and offering expenses.

2014 Private Placement Sale

On December 23, 2014, the Company completed a private placement pursuant to which certain investors purchased 6,944,445 shares of Vermillion common stock at a price of $1.44 per share. Vermillion also issued warrants to purchase shares of common stock at a price of $0.125 per warrant share in the private placement. Net proceeds of the private placement were approximately $10,288,000 after deducting offering expenses. The warrants areexercisable for 4,166,659 shares of Vermillion common stock at $2.00 per share and expire on December 23, 2017.

The saleof 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 $2,970,000 and tothe common stock is $7,311,000.

Other 2014 Equity Offerings

In October 2014, the Company established an at-the-market offering program, pursuant to which it may offer and sell, from time to time, shares of Company common stock having an aggregate offering price of up to $15,000,000. The Company is obligated to pay a commission of up to 3.0% of the gross proceeds from the sale of shares of Vermillion common stock in the offering. The Company is not obligated to sell any shares in the offering. During the year ended December 31, 2014, approximately 48,473 shares of the Vermillion common stock were sold under the program for aggregate proceeds of $75,000  (no net proceeds after deducting offering costs). The Company suspended the program on December 24, 2014.

F-13

Warrants

Warrants outstanding as of December 31, 2015and 2014were as follows:

		Exercise Price	Number of Shares Outstanding under Warrant
Issuance Date	Expiration Date	per Share	December 31, 2015	December 31, 2014
May 1, 2013	April 30, 2015	$             1.88	-	21,000
May 13, 2013	May 13, 2016	$             1.46	413,359	413,359
November 1, 2013	October 31, 2015	$             3.89	-	21,000
May 1, 2014	April 30, 2016	$             4.70	7,000	7,000
December 23, 2014	December 23, 2017	$             2.00	4,166,659	4,166,659
			4,587,018	4,629,018

NOTE 8:Loss Per Share

The reconciliation of the numerators and denominators of basic and diluted loss per share for the years ended December31, 2015 and 2014was as follows:

	Loss		Shares	Per Share
(In thousands, except per share data)	(Numerator)		(Denominator)	Amount
Year ended December 31, 2014:
Net loss - basic	$	(19,209)	36,082,414	$	(0.53)
Dilutive effect of common stock shares issuable upon exercise of stock options, exercise of warrants, and unvested restricted stock awards		-	-
Net loss - diluted	$	(19,209)	36,082,414	$	(0.53)
Year ended December 31, 2015:
Net loss - basic	$	(19,115)	47,124,261	$	(0.41)
Dilutive effect of common stock shares issuable upon exercise of stock options, exercise of warrants, and unvested restricted stock awards		-	-
Net loss - diluted	$	(19,115)	47,124,261	$	(0.41)

Due to net losses for the years ended December31, 2015 and 2014, diluted loss per share is calculated using the weighted average number of common shares outstanding and excludes the effects of potential shares of common stock  that are antidilutive. 

The potential shares of common stock that have been excluded from the diluted loss per share calculation above for the years ended December31, 2015 and 2014were as follows:

	Year Ended December 31,
	2015	2014
Stock options	3,317,811	1,711,046
Stock warrants	4,587,018	4,629,018
Potential common shares	7,904,829	6,340,064

F-14

NOTE 9:Employee Benefit Plans

2000 Stock Plan

Under the Amended and Restated 2000 Stock Plan (the “2000 Plan”), options could be granted at prices not lower than 85% and 100% of the fair market value of the common stock for non-statutory and statutory stock options, respectively.  Options generally vest monthly over a period of four years and unexercised options generally expire ten years from the date of grant.  The authority of Vermillion’s Board of Directors to grant new stock options and awards under the 2000 Plan terminated in 2010.  There were no stock options under the 2000 Stock Plan exercised during the year ended December 31, 2015. Options to purchase 15,000 shares of common stock were exercised during the year ended December 31, 2014. No additional shares of common stock were reserved for future option grants under the 2000 Plan.

2010 Stock Incentive Plan

Under the 2010 Plan, employees, directors and consultants of the Company are eligible to receive awards. The 2010 Plan is administered by the Compensation Committee of the Vermillion Board of Directors. 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. On June 18, 2015, the Company’s stockholders approved an increase of 4,500,000 in the number of shares available for issuance under the 2010 Plan for a total of 8,122,983 shares.Unexercised options generally expire ten years from the date of grant. Options to purchase 59,583 and 163,490 shares of common stock were exercised during the year ended December 31, 2015and 2014, respectively.

During the year ended December 31, 2015, the Company issued to the Vermillion Board of Directors 195,781 shares of restricted stock from the 2010 Plan having a fair value of $401,000 as payment for services rendered in 2015.  During the year ended December 31, 2014, the Company issued to the Vermillion Board of Directors 103,500 shares of restricted stock from the 2010 Plan having a fair value of $320,000 as payment for services rendered in 2014.

Subsequent to December 31, 2015, the Company awarded 226,000 shares of restricted stock from the 2010 Plan having a fair value of approximately $354,000 to Vermillion’s Board of Directors as payment for services in 2016.  The restricted stock vests 50% on June 1, 2016 and 25% each on September 1, 2016 and December 1, 2016.  The Company also granted approximately 1,024,000 stock options with an exercise price of approximately $1.57 per share to certain Vermillion officers,  employees and consultants.  These stock options generally vest 25% on each of the four anniversaries of the grant date. In addition, the Company granted certain officers and consultants options to purchase 300,000 shares of Vermillion common stock with an exercise price of approximately $1.57 per share with performance-based vesting based on certain metrics through December 31, 2016.

The activity related to shares available for grant under the 2000 Plan and the 2010 Plan for the years ended December31, 2015and 2014was as follows:

	2000 Stock Plan	2010 Stock Option Plan	Total
Shares available at December 31, 2013	-	1,420,441	1,420,441
Options canceled	124,397	945,826	1,070,223
Reduction in shares reserved	(124,397)	-	(124,397)
Options granted	-	(1,512,000)	(1,512,000)
Restricted stock units granted	-	(128,500)	(128,500)
Restricted stock units canceled	-	11,667	11,667
Shares available at December 31, 2014	-	737,434	737,434
Shares added		4,500,000	4,500,000
Options canceled	3,800	69,352	73,152
Reduction in shares reserved	(3,800)	-	(3,800)
Options granted	-	(1,739,500)	(1,739,500)
Restricted stock units granted	-	(195,781)	(195,781)
Shares available at December 31, 2015	-	3,371,505	3,371,505

F-15

The stock option activity under the 2000 Plan and 2010 Plan for the years ended December31, 2015and 2014was as follows:

	Number of Shares	Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual  Term
Options outstanding at December 31, 2013	1,447,968	$	3.36	$	780	7.94
Granted	1,512,000		2.58
Exercised	(178,699)		1.34
Canceled	(1,070,223)		3.77
Options outstanding at December 31, 2014	1,711,046	$	2.62	$	178	7.82
Granted	1,739,500		1.99
Exercised	(59,583)		1.62
Canceled	(73,152)		3.29
Options outstanding at December 31, 2015	3,317,811	$	2.29	$	91	8.24
Shares exercisable:
December 31, 2015	1,087,139	$	2.69	$	39	6.50
Shares expected to vest:
December 31, 2015	1,829,151	$	2.09	$	52	9.09

The range of exercise prices for options outstanding and exercisable at December31, 2015is as follows:

	Exercise Price				Options Outstanding		Weighted  Average Exercise Price	Weighted Average  Remaining Life in Years	Options Exercisable		Weighted Average Exercise Price
$	0.01	-	$	1.30	30,000	$	1.30	8.95	8,801	$	1.30
	1.31	-		2.12	2,363,000		1.94	8.49	561,101		1.88
	2.13	-		3.09	702,875		2.70	7.85	364,545		2.80
	3.10	-		9.92	204,650		3.48	7.29	135,406		3.54
	9.93	-		28.65	17,286		20.97	0.77	17,286		20.97
$	0.01	-	$	28.65	3,317,811	$	2.29	8.24	1,087,139	$	2.69

(in thousands)		Total Intrinsic Value of Options Exercised		Total Fair Value of Vested Options
Year ended December 31, 2015	$	13	$	1,864
Year ended December 31, 2014	$	55	$	655

F-16

Stock-based Compensation

Employee Stock-based Compensation Expense

The assumptions used to calculate the fair value of options granted under the 2010 Plan that were incorporated in the Black-Scholes pricing model for the years ended December31, 2015and 2014were as follows:

	Year Ended December 31,
	2015			2014
Dividend yield		-	%		-	%
Volatility		78	%		80	%
Risk-free interest rate		1.76	%		1.92	%
Expected lives (years)		6.0			6.0
Weighted average fair value	$	1.37		$	1.78

The allocation of employee stock-based compensation expense by functional area for the years ended December31, 2015and 2014was as follows:

	Year Ended December 31,
(in thousands)		2015		2014
Cost of Sales	$	40	$	1
Research and development		137		136
Sales and marketing		209		259
General and administrative		825		741
Total	$	1,211	$	1,137

As of December31, 2015, total unrecognized compensation cost related to unvested stock option awards was approximately $2,464,000and the related weighted average period over which it is expected to be recognized was 2.24 years.

401(k)Plan

The Company’s 401(k) Plan allows eligible employees to defer up to an annual limit of the lesser of 90.0% of eligible compensation or a maximum contribution amount subject to the Internal Revenue Service annual contribution limit.  The Company is not required to make contributions under the 401(k) Plan.  During the years ended December 31, 2015 and 2014, the Company did not contribute to the 401(k) Plan.

NOTE 10:Income Taxes

There was no income tax expense or benefit for the years ended December 31, 2015 or 2014 because of net losses during those years. These net losseswere generated from domestic operations.

Based on the available objective evidence and uncertainty about the timing and amount of any future profits, the Company has provided a full valuation allowance against ournet deferred tax assets at December 31, 2015and 2014.  

F-17

The components of net deferred tax assets at December 31, 2015and 2014were as follows:

	Year Ended December 31,
(in thousands)	2015		2014
Deferred tax assets:
Net operating losses	$	65,341	$	58,276
Amortization - R&D intangibles		5,919		6,227
Other		3,007		2,936
Total deferred tax assets		74,267		67,439
Valuation allowance		(74,267)		(67,431)
Deferred tax assets	$	-	$	8
Deferred tax liabilities:
Other	$	-	$	(8)
Deferred tax liabilities	$	-	$	(8)
Net deferred tax asset	$	-	$	(0)

The reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2015and 2014was as follows:

	Year Ended December 31,
	2015		2014
Tax at federal statutory rate	34	%	34	%
State tax, net of federal benefit	2		1
Valuation allowance	(36)		(16)
Change in warrant valuation	-		-
Net operating loss and credit reduction due to section 382 limitations	-		-
Permanent items	(1)		(3)
Other	1		(16)
Effective income tax rate	-	%	-	%

As of December 31, 2015, the Company had pre-tax net operating loss carryforwards of approximately $185,000,000 for federal and $160,000,000 for state tax purposes.  If not utilized, these carryforwards begin to expire in 2025 for federal purposes and 2016 for state purposes. In 2016, approximately $5,000,000 of the Company’s state net operating loss will expire.

The Company’s ability to use net operating loss and tax credit carryforwards may be restricted due to ownership change limitations, as required by Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”), as well as similar state provisions. These limitations may reduce the amount of net operating loss and tax credit carryforwards that can be utilized annually to offset future taxable income and tax and may result in the expiration of a portion of the net operating loss and credit carryforwards before utilization. Such limitations, if any, will only impact the results of operations or financial position when and if the valuation allowance is eliminated.

The Company believes that Section 382 ownership changes occurred as a result of the follow-on public common stock offering in 2011, 2013, and 2015.  

The valuation allowance was $74,000,000 and $67,000,000 at December 31, 2015and 2014, respectively. The increase of $7,000,000 between 2015and 2014is primarily due to increased net operating loss carryforwards.

The Company files income tax returns in the U.S. and in various state jurisdictions with varying statutes of limitations. The Company has not been audited by the Internal Revenue Service or any state income or franchise tax agency. As of December 31, 2015,  the Company’s federal returns for the years ended 2012through 2015 and most state returns for the years ended 2011through

F-18

2015 are still open to examination. In addition, all net operating loss carryforwards and research and development credit carryforwards are subject to Internal Revenue Service audit.

The Company’s net deferred tax assets exclude unrecognized tax benefits for research and development credit carryforwards. A reconciliation of the change in the Company’s unrecognized tax benefits is as follows:

(in thousands)		Federal Tax		State Tax		Total
Balance at December 31, 2013	$	5,040	$	5,024	$	10,064
Increase in tax position during 2014		148		111		259
Decrease due to expirations		-		-		-
Balance at December 31, 2014	$	5,188	$	5,135	$	10,323
Increase in tax position during 2015		147		110		257
Decrease due to expirations		-		-		-
Balance at December 31, 2015	$	5,335	$	5,245	$	10,580

If the $10,580,000 of unrecognized income tax benefit is recognized, approximately$10,580,000would impact the effective tax rate in the period in which each of the benefits is recognized.

The Company recognizes interest and penalties related to unrecognized tax benefits within the interest expense line and other expense line, respectively, in the consolidated statement of operations. The Company has not recorded any interest or penalties as a result of uncertain tax positions as of December 31, 2015and 2014. Accrued interest and penalties would be included within the related liability in the consolidated balance sheet.

NOTE 11:Related Party Transactions

On January 18, 2016, the Company entered into a consulting agreement with David Schreiber, a member of Vermillion’s Board of Directors.  Pursuant to the terms of the consulting agreement, Mr. Schreiber will provide consulting services regarding business strategies and operational plans and willbe paid $375 per hour or a minimum of $51,750 for the period up to the expiration of the agreement on March 31, 2016.On October 10, 2014, the Company entered into a consulting agreement with David Schreiber, a member of Vermillion’s Board of Directors.  Pursuant to the terms of the consulting agreement, Mr. Schreiber provided consulting services regarding finance and corporate strategy and was paid $375 per hour.  For the year ended December 31, 2014, the total amount of consulting fee expense for Mr. Schreiber was $22,375.

On October 23, 2014, the Company appointed Valerie Palmieri as Chief Operating Officer (“COO”). Vermillion was party to a consulting agreement with a company owned by Ms. Palmierito provide laboratory operations and commercialization consulting services to Vermillion.  The Company made payments of $340,000 for services provided pursuant to the consulting agreement through September 30, 2014. The consulting agreement was terminated as of October 23, 2014. In connection with the work performed under the consulting agreement, the Company granted Ms. Palmieri 15,000 shares of restricted stock under the 2010 Plan having a fair value of approximately $31,000 for achievement of certain milestones. Ms. Palmieri was named President and Chief Executive Officer effective January 1, 2015.

F-19

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

	Vermillion, Inc.
Date:  March 30,  2016	/s/ Valerie B. Palmieri
	Valerie B. Palmieri President and Chief Executive Officer(Principal Executive Officer)
Date:  March 30,  2016	/s/ Eric J. Schoen
	Eric J. Schoen Vice President, Finance and Chief Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/ Valerie B. Palmieri Valerie B. Palmieri	President and Chief Executive Officer(Principal Executive Officer) and Director	March 30,  2016
/s/ Eric J. Schoen Eric J. Schoen	Vice President, Finance and Chief Accounting Officer (Principal Financial Officer)	March 30,  2016
/s/ James T.  LaFrance James T. LaFrance	Chairman of the Board of Directors	March 30,  2016
/s/ James S. Burns James S. Burns	Director	March 30,  2016
/s/ Veronica G. H. Jordan Veronica G. H. Jordan	Director	March 30,  2016
/s/ Peter S. Roddy Peter S. Roddy	Director	March 30,  2016
/s/ David Schreiber David Schreiber	Director	March 30,  2016
/s/ Carl Severinghaus Carl Severinghaus	Director	March 30,  2016
/s/ Eric Varma Eric Varma	Director	March 30,  2016

20

INDEX TO EXHIBITS

Exhibit			Incorporated by Reference				Filed
Number	Exhibit Description		Form	File No.	Exhibit	Filing Date	Herewith
2.1	Asset Purchase Agreement between Vermillion, Inc. and Correlogic Systems, Inc., dated November 8, 2011		10-K	001-34810	10.50	March 27, 2012
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
3.23.3		Certificate of Amendment of Fourth Amended Certificate of Incorporation, effective June 19, 2014 Fifth Amended and Restated Bylaws of Vermillion, Inc., as amended effective June 19,  2014	10-Q 10-Q	001-34810 001-34810	3.23.3	August 14, 2014 August 14, 2014
4.1	Form of Vermillion, Inc.’s (formerly Ciphergen Biosystems, Inc.) Common Stock Certificate		S-1/A	333-32812	4.1	August 24, 2000
4.2	Securities Purchase Agreement by and among Vermillion, Inc. and the purchasers party thereto dated August 23, 2007		S-1	333-146354	10.57	September 27, 2007
4.3	Form of Securities Purchase Agreement between Vermillion, Inc. and the purchasers party thereto dated December 24, 2009		8-K	000-31617	10.1	December 29, 2009
4.4	Securities Purchase Agreement dated May 8, 2013, by and among Vermillion, Inc. and the purchasers identified therein, including the Form of Warrant included as Exhibit D thereto		8-K	001-34810	10.1	May 14, 2013
4.5	Stockholders Agreement dated May 13, 2013, by and among Vermillion, Inc., Oracle Partners, LP, Oracle Ten Fund Master, LP, Jack W. Schuler and other purchasers named therein.		8-K	001-34810	10.2	May 14, 2013
4.6	Vermillion, Inc. Common Stock Purchase Warrant issued to Liolios Group, Inc. on November 1, 2012		S-3	333-198734	4.5	September 15, 2014
4.7	Vermillion, Inc. Common Stock Purchase Warrant issued to Liolios Group, Inc. on May 1, 2013		S-3	333-198734	4.6	September 15, 2014
4.8	Vermillion, Inc. Common Stock Purchase Warrant issued to Liolios Group, Inc. on November 1, 2013		S-3	333-198734	4.7	September 15, 2014
4.9	Vermillion, Inc. Common Stock Purchase Warrant issued to Liolios Group, Inc. on May 1, 2014		S-3	333-198734	4.8	September 15, 2014

21

4.10	Form of Vermillion, Inc. Common Stock Purchase Warrant, issued on May 13, 2013	S-3	333-198734	4.4	September 15, 2014
10.1	1993 Stock Option Plan  #	S-1	333-32812	10.3	March 20, 2000
10.2	Form of Stock Option Agreement  #	S-1/A	333-32812	10.4	August 24, 2000
10.3	2000 Stock Plan and related form of Stock Option Agreement  #	S-1/A	333-32812	10.5	August  4, 2000
10.4	Amended and Restated 2000 Employee Stock Purchase Plan  #	10-Q	000-31617	10.6	November 14, 2007
10.5	Vermillion, Inc. 2010 Stock Incentive Plan  #	8-K	000-31617	10.1	February 12, 2010
10.6	Ciphergen Biosystems, Inc. 401(k) Plan  #	10-K	000-31617	10.7	March 22, 2005
10.7	Form of Proprietary Information Agreement between Vermillion, Inc. (formerly Ciphergen Biosystems, Inc.) and certain of its employees  #	S-1/A	333-32812	10.9	August 24, 2000
10.8	Vermillion, Inc. Amended and Restated 2010 Stock Incentive Plan #	8-K	001-34810	10.1	December 17, 2013
10.9	Employment Agreement between Eric J. Schoen and Vermillion, Inc. dated April 4, 2012 #	8-K	001-34810	10.1	April 10, 2012
10.10	Offer letter from Vermilllion, Inc. to Donald G. Munroe dated September 20, 2011#	8-K	001-34810	10.1	September 26, 2011
10.11	Consulting Agreement between David Schreiber and Vermillion, Inc. dated October 10, 2014	10-K	001-34810	10.24	March 31, 2015
10.12	Consulting Agreement between David Schreiber and Vermillion, Inc. dated November 5, 2014	10-K	001-34810	10.25	March 31, 2015
10.13	Consulting Agreement between David Schreiber and Vermillion, Inc. dated January 18, 2016					√
10.14	Employment Agreement between Vermillion, Inc. and Fred Ferrara dated April 1, 2015 #	8-K	001-34810	10.1	April 6, 2015

22

10.15  Employment Agreement between Vermillion, Inc. and Laura Miller dated January 7, 2015 # 8-K 001-34810 10.1  January 13, 2015

10.16	Employment Agreement between Vermillion, Inc. and Valerie B. Palmieri effective  January 1, 2015 #	8-K	001-34810	99.1	December 17, 2015
10.17	Global SettlementAgreementand Mutual Releasebetween Vermillion, Inc., ASPiRA LABS, Inc. and Quest Diagnostics Incorporated dated March 11,2015	10-Q	001-34810	10.4	May 12, 2015
10.18	Testing and Services Agreement between Vermillion, Inc., ASPiRA LABS, Inc. and Quest Diagnostics Incorporated, dated as of March 11, 2015	10-Q	001-34810	10.5	May 12, 2015
10.19	Amendment No. 1 to the Testing Services Agreement dated March 11, 2015 between Vermillion, Inc., ASPiRA LABS, Inc. and Quest Diagnostics Incorporated dated April 10, 2015	10-Q	001-34810	10.6	May 12, 2015
10.20	Non-Exclusive License Agreement among Quest Diagnostics Clinical Laboratories, Inc., Quest Diagnostics Incorporated, Vermillion, Inc. and ASPiRA LABS, Inc. dated March 11, 2015	10-Q	001-34810	10.7	May 12, 2015
10.21	Share Repurchase Agreement between Vermillion, Inc. and Quest Diagnostics Incorporated dated as of June 17, 2015	8-K	001-34810	99.1	June 18, 2015
14.1	Code of Ethics	8-K	001-34810	14.1	December 7, 2010
21.0	Subsidiaries of Registrant					√
23.1	Consent of BDO USA, LLP, Independent Registered Public Accounting Firm					√
31.1	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					√
31.2	Certification of the Chief Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					√

23

32.0	Certification of the Chief Executive Officer and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		√
101		Interactive Data Files	√

√Furnished herewith

#Management contracts or compensatory plan or arrangement.

†Confidential treatment has been granted with respect to certain provisions of this agreement. Omitted portions have been filed separately with the SEC.

24

EX-10.13

Exhibit 10.13

CONSULTING AGREEMENT

This Consulting Agreement (“Agreement”) confirms the understanding between David Schreiber (“Schreiber”) and Vermillion, Inc. (“the Company”) pursuant to which the Company has retained Schreiber to provide consulting services of the type described below (collectively, the “Services”), on the terms and subject to the conditions set forth herein, in connection with the matters referred to herein.

1.Scope of Services and Compensation

(a)Schreiber agrees to perform for the Company, beginning immediately upon the signing of this Agreement, the Services in relation to the Company’s evaluation and assessment of the feasibility of various business strategies and operational plans as outlined by the Company’s CEO.

(b)Schreiber will also perform other duties from time to time as are reasonably requested by Company and agreed to by Schreiber.

(c)During the term of this Agreement, Schreiber will be paid $375-per hour for performing the Services.  Notwithstanding the preceding sentence, Schreiber will be paid a minimum of $51,750 for aperiod from the date hereof and ending on April 1, 2016 (which represents compensation for 138 hours of Services).  Travel time will not be billed for. An additional 62 hours will be performed as a professional courtesy resulting from a previous agreement.These 62 hours will not be billed for.

(d)The Company shall make payments for Services to Schreiber promptly upon presentation of a statement of services rendered.  Schreiber will invoice the Company on a monthly basis.

(e) The Company shall reimburse Schreiber for his reasonable out of pocket costs, including meals, travel, lodging, parking and other expenses incurred in connection with the performance of his duties under this Agreement.Travel time is not billed for.

2.Period of Performance and Exclusivity

(a)Unless otherwise extended by the parties, this Agreement shall run for an initial period of three (3) months from the date hereof (the “Initial Term”), and shall automatically renew for additional three (3) month terms unless either party  provides written notice of its intent not to renew (in each case, if any, a “Renewal Term”).  The Initial Term and any Renewal Terms shall constitute the “Term”.

(b)During the term of this Agreement, Schreiber shall not perform Services related to the Company’s business for any person during the term of this Agreement other than the Company, or an affiliate of the Company, without the Company’s prior written consent.

3.Termination.

(a)This Agreement may be terminated by either Schreiber or the Company at any time upon five (5) days prior written notice.  Upon such a termination, Schreiber shall be entitled to

all accrued payments and reimbursement of expenses permissible under this Agreement and due to him on the date of termination.  In addition, if this Agreement is terminated by the Company before the conclusion of the Term, Schreiber shall be entitled to receive any amounts due pursuant to the minimum guaranty payment set forth in Section 1(c).

(b)The parties acknowledge that the provisions of Sections 1, 4 and other provisions, which may be reasonably interpreted to be intended to do, so shall survive the expiration or termination of this Agreement.

4.Indemnification.

The Company shall indemnify and hold harmless Schreiber from and against any and all claims, damages, losses and judgments (including reasonable attorneys’ fees and costs) arising from or related to this Agreement, except to the extent that the matter giving rise to such claim for indemnity was the result of fraud, bad faith, recklessness, willful misconduct, the commission of a felony or the gross negligence of Schreiber.

5.Contractual Relationship

In performing the services under this Agreement, Schreiber shall operate as, and have the status of, an independent contractor.  Schreiber shall not have authority to enter into any contract binding the Company or create any obligations on the part of the Company except as shall be specifically authorized by the Company.  The Company and Schreiber will be mutually responsible for determining methods for performing the services described in Section 1 hereof.

6.Representatives and Notices

All notices provided for herein shall be in writing, and may be served personally to the Fund representative or its assigns and/or a representative of Schreiber, at their respective places of business, or by registered mail to the address of each party, or may be transmitted by facsimile.

7.Arbitration/Jurisdiction of the Court

Any claim or controversy arising out of, or relating to, this agreement, or breach thereof, which is not settled between the signatories themselves, shall be settled by an independent arbitrator, mutually acceptable to both parties.  Jurisdiction for any legal action is stipulated by the parties to lie in the State of New York.

8.Miscellaneous

This Agreement constitutes the entire agreement between the Company and Schreiber relating to the provisions of the Services on and after the date of this Agreement and may not be assigned without the prior written consent of the other party.  It supersedes all prior communications, representations or agreements, whether oral or written, with respect to the subject matter hereof, and has not been induced by any representations, statements or agreements other than those expressed herein.  No agreements, hereafter made between the parties shall be binding on either party unless reduced to writing and signed by an authorized officer of the party bound.  This Agreement may be executed in counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. 

This Agreement shall be, in all respects, interpreted and construed, and the rights of the parties hereto governed, by the laws of the State of Connecticut without regard to its conflicts of laws provisions.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have caused this Consulting Agreement to be executed as of this 18th day of January, 2016.

     Vermillion Inc.

By: /s/ Eric J. Schoen

By:  Eric J. Schoen                           

Title:  Vice President of Finance and Chief Accounting Officer                          

/s/ David Schreiber

               David Schreiber

EX-21.0

Exhibit 21.0

Vermillion, Inc. Subsidiaries

December 31, 2015

SPiRA L
Subsidiary	State/Country of Incorporation/Formation
IllumeSys Pacific, Inc........................................................	California
Ciphergen Technologies, Inc..............................................	California
ASPiRA Labs, Inc................................................................	Delaware

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

Vermillion, Inc.

Austin, Texas

We hereby consent to the incorporation by reference in the Registration Statements on Form S3 (Nos. 333-189929, 333-198734, and 333-202032) and Form S-8 (Nos. 333-167204, 333-193312, 333-205855) of Vermillion, Inc. of our report dated March 30, 2016, relating to the consolidated financial statements, which appears in this Form 10-K.

/s/ BDO USA, LLP

Austin, Texas

March 30, 2016

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Valerie B. Palmieri, certify that:

1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2015of Vermillion, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

8
Date:  March 30, 2016	/s/ Valerie B. Palmieri
	Valerie B. Palmieri President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Eric J. Schoen, certify that:

1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2015of Vermillion, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

X
Date:  March 30, 2016	/s/ Eric J. Schoen
	Eric J. Schoen Vice President, Finance and Chief Accounting Officer (Principal Financial Officer)

EX-32.0

Exhibit 32.0

Certification

Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

with Respect to the Annual Report on Form 10-K

for the Year Ended December 31, 2015

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Vermillion, Inc., a Delaware corporation (the “Company”), does hereby certify, to the best of such officer’s knowledge, that:

1. The Company’s annual report on Form 10-K for the year ended December 31, 2015, (the “Form 10-K”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and

2. The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

	Bruce A. Huebner
Date:  March 30, 2016	/s/ Valerie B. Palmieri
	Valerie B. Palmieri President and Chief Executive Officer (Principal Executive Officer)
Date:  March 30, 2016	/s/ Eric J. Schoen
	Eric J. Schoen Vice President, Finance and Chief Accounting Officer (Principal Financial Officer)

The certification set forth above is being furnished as an Exhibit solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Form 10-K or as a separate disclosure document of the Company or the certifying officers.

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2015	Mar. 25, 2016	Jun. 30, 2015
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	FY
Entity Registrant Name	VERMILLION, INC.
Entity Central Index Key	0000926617
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 52,429,097
Entity Common Stock, Shares Outstanding		52,113,059

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Current assets:
Cash and cash equivalents	$ 18,642	$ 22,965
Accounts receivable	87	167
Prepaid expenses and other current assets	550	534
Inventories	87
Total current assets	19,366	23,666
Property and equipment, net	1,504	508
Other Assets	90
Total assets	20,960	24,174
Current liabilities:
Accounts payable	988	1,123
Accrued liabilities	2,208	2,201
Short-term debt		1,106
Deferred revenue		489
Other Current Liabilities	155
Total current liabilities	3,351	4,919
Lease obligation - long term	63
Total liabilities	$ 3,414	$ 4,919
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding at December 31, 2015 and 2014
Common stock, $0.001 par value, 150,000,000 shares authorized; 52,113,059 and 43,115,790 shares issued and outstanding at December 31, 2015 and 2014, respectively	$ 52	$ 43
Additional paid-in capital	388,082	370,685
Accumulated deficit	(370,588)	(351,473)
Total stockholders' equity	17,546	19,255
Total liabilities and stockholders' equity	$ 20,960	$ 24,174

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2015	Dec. 31, 2014
Statement Of Financial Position [Abstract]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	52,113,059	43,115,790
Common stock, shares outstanding	52,113,059	43,115,790

XML

Consolidated Statements Of Operations - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Revenue:
Product	$ 1,861	$ 2,067
License	316	454
Total revenue	2,177	2,521
Cost of revenue:
Product	2,309	1,230
Gross profit (loss)	(132)	1,291
Operating expenses:
Research and development	3,751	4,667
Sales and marketing	9,833	9,893
General and administrative	5,533	5,942
Total operating expenses	19,117	20,502
Loss from operations	(19,249)	(19,211)
Interest income	28	40
Other income (expense), net	106	(38)
Loss before income taxes	$ (19,115)	$ (19,209)
Income tax benefit (expense)
Net loss	$ (19,115)	$ (19,209)
Net loss per share - basic and diluted	$ (0.41)	$ (0.53)
Weighted average common shares used to compute basic and diluted net loss per common share	47,124,261	36,082,414

XML

Consolidated Statements Of Operations (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Cost Of Revenue [Member]
Stock-based compensation expense	$ 40	$ 1
Research And Development [Member]
Stock-based compensation expense	137	136
Sales And Marketing [Member]
Stock-based compensation expense	209	259
General And Administrative [Member]
Stock-based compensation expense	$ 841	$ 775

XML

Consolidated Statements Of Changes In Stockholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-In Capital [Member]	Accumulated Deficit [Member]	Total
Balance (in shares) at Dec. 31, 2013	35,825,673
Balance at Dec. 31, 2013	$ 36	$ 358,994	$ (332,264)	$ 26,766
Net loss			(19,209)	(19,209)
Common stock and warrants issued in conjunction with private placement sale/follow-on public offering, net of issuance costs (in shares)	6,944,445
Common stock and warrants issued in conjunction with private placement sale, net of issuance costs	$ 7	10,281		$ 10,288
Common stock offering - at-the-market (ATM), (in shares)	48,473
Common stock issued in conjuntion with exercise of stock options (in shares)	178,699			178,699
Common stock issued in conjuntion with execise of stock options		239		$ 239
Common stock issued for restricted stock awards (in shares)	118,500
Common stock issued for restricted stock awards		351		351
Warrants issued for services		22		22
Stock compensation charge		798		798
Balance (in shares) at Dec. 31, 2014	43,115,790
Balance at Dec. 31, 2014	$ 43	370,685	(351,473)	19,255
Net loss			(19,115)	(19,115)
Common stock and warrants issued in conjunction with private placement sale/follow-on public offering, net of issuance costs (in shares)	9,602,500
Common stock and warrants issued in conjunction with private placement sale, net of issuance costs	$ 10	17,363		$ 17,373
Common stock issued in conjuntion with exercise of stock options (in shares)	59,583			59,583
Common stock issued in conjuntion with execise of stock options		97		$ 97
Common stock issued for restricted stock awards (in shares)	195,781
Common stock issued for restricted stock awards		401		401
Stock compensation charge		826		826
Repurchase of common stock (in shares)	(860,595)
Repurchase of common stock	$ (1)	(1,290)		(1,291)
Balance (in shares) at Dec. 31, 2015	52,113,059
Balance at Dec. 31, 2015	$ 52	$ 388,082	$ (370,588)	$ 17,546

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Consolidated Statements Of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Cash flows from operating activities:
Net loss	$ (19,115)	$ (19,209)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on extinguishment of debt	(37)
Non-cash license revenue	(316)	$ (454)
Depreciation and amortization	291	141
Stock-based compensation expense	$ 1,227	1,149
Warrants issued for services		22
Changes in operating assets and liabilities:
Accounts receivable	$ 80	206
Prepaid expenses and other assets	(106)	$ (162)
Inventories	(87)
Accounts payable, accrued liabilities and other liabilities	(129)	$ 1,500
Deferred revenue	(173)	(1)
Net cash used in operating activities	(18,365)	(16,808)
Cash flows from investing activities:
Purchase of property and equipment	(282)	$ (258)
Construction in progress	(773)
Net cash used in investing activities	$ (1,055)	$ (258)
Cash flows from financing activities:
Proceeds from private placement offering of common stock, net of issuance costs		$ 10,288
Repayment of capital lease obligations	$ (13)
Repurchase of Quest Diagnostics common stock	(1,291)
Issuance costs related to 2014 private placement	(122)
Proceeds from public offering of common stock, net of issuance costs	17,495
Proceeds from issuance of common stock from exercise of stock options	97	$ 239
Repayment of short-term debt	(1,069)
Net cash provided by financing activities	15,097	$ 10,527
Net decrease in cash and cash equivalents	(4,323)	(6,539)
Cash and cash equivalents, beginning of year	22,965	29,504
Cash and cash equivalents, end of year	18,642	$ 22,965
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	7
Supplemental disclosure of noncash investing and financing activities:
Equipment acquired through capital lease agreements	107
Changes in other current liabilities related to equipment	$ 125

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Basis Of Presentation And Summary Of Significant Accounting And Reporting Policies

12 Months Ended

Dec. 31, 2015

Basis Of Presentation And Summary Of Significant Accounting And Reporting Policies [Abstract]

Basis Of Presentation And Summary Of Significant Accounting And Reporting Policies

NOTE 1:Basis of Presentation and Summary of Significant Accounting and Reporting Policies

Organization

Vermillion, Inc. (“Vermillion”; Vermillion and its wholly-owned subsidiaries are collectively referred to as the “Company”) is incorporated in the state of Delaware, and is engaged in the business of developing and commercializing diagnostic tests for gynecologic disease.  The Company sells OVA1™ risk of malignancy test for pelvic mass disease (“OVA1”). Until August 10, 2015, the Company distributed OVA1 through Quest Diagnostics Incorporated (“Quest Diagnostics”) (see Note 3). Since August 10, 2015, the Company has distributed all but a nominal number of OVA1 tests through Vermillion’s wholly-owned Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) certified clinical laboratory, ASPiRA LABS, Inc. (“ASPiRA LABS”), which opened in June 2014.

Liquidity

On December 23, 2014, the Company completed a private placement pursuant to which certain investors purchased 6,944,445 shares of Vermillion common stock at a price of $1.44 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 $10,288,000 after deducting offering expenses. The warrants are exercisable for 4,166,659 shares of Vermillion common stock at $2.00 per share and expire on December 23, 2017.

On July 17, 2015 the Company completed the sale of 9,602,500 shares of Vermillion common stock, at a price to the public of $1.96 per share, including 1,252,500 shares sold pursuant to the full exercise of the underwriters' option to purchase additional shares, in an underwritten public offering at a price of $1.96 per share. Net proceeds from the offering were approximately $17,495,000 after deducting underwriting discounts and offering expenses.

As discussed in Note 6, on March 22, 2016, the Company entered into an agreement pursuant to which it may borrow up to $4,000,000 from the State of Connecticut Department of Economic and Community Development (“DECD”). Initial gross proceeds of $2,000,000 are due after final State of Connecticut approval and satisfaction of customary closing conditions.  The remaining $2,000,000 will be advanced if and when the Company achieves certain future milestones.

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 $370,588,000 at December 31, 2015. The Company expects to incur a net loss in 2016 and the foreseeable future. The Company’s management believes that successful achievement of the business objectives will require additional financing.  The Company expects to raise capital through a variety of sources, which may include the public equity market, private equity financing, collaborative arrangements, licensing arrangements, and/or public or private debt. However, additional funding may not be available when needed or on terms acceptable to the Company. If the Company is unable to obtain additional capital, it may not be able to continue sales and marketing, research and development, or other operations on the scope or scale of current activity and that could have a material adverse effect on the business, results of operations and financial condition.

There can be no assurance that the Company will achieve or sustain profitability or positive cash flow from operations.  However, management believes that the current working capital position as of the date of these financial statements will be sufficient to meet the Company’s working capital needs for at least the next twelve months. Management expects cash from product sales to be the Company’s only material, recurring source of cash in 2016.

Basis of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.  All intercompany transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  The primary estimates underlying the Company’s consolidated financial statements include assumptions regarding variables used in calculating the fair value of the Company’s equity awards, income taxes and contingent liabilities.  Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments with maturities of three months or less from the date of purchase, which are readily convertible into known amounts of cash and are so near to their maturity that they present an insignificant risk of changes in value because of interest rate changes.  Highly liquid investments that are considered cash equivalents include money market funds, certificates of deposits, treasury bills and commercial paper.  The carrying value of cash equivalents approximates fair value due to the short-term maturity of these securities.

Fair Value Measurement

Accounting Standards Codification (“ASC”)Topic 820,Fair Value and Measurements (“ASC 820”), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents and accounts receivable.  The Company maintains cash and cash equivalents in recognized financial institutions in the United States.  The funds are insured by the FDIC up to a maximum of $250,000, but are otherwise unprotected.  The Company has not experienced any losses associated with deposits of cash and cash equivalents.  The Company does not invest in derivative instruments or engage in hedging activities.

Accounts receivable

Accounts receivable are derived from sales made to customers located in North America.  The Company performs ongoing credit evaluations of its customer’s financial condition and generally does not require collateral.  The Company maintains an allowance for doubtful accounts based upon the expected collectability of accounts receivable.  Accounts receivable at December 31, 2015 was from 14 customers.  Accounts receivable at December 31, 2014 was from one customer.

Property and Equipment

Property and equipment are carried at cost less accumulated depreciation and amortization. Property and equipment are depreciated when placed into service using the straight-line method over the estimated useful lives, generally three to five years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the remaining term of the lease. Maintenance and repairs are charged to operations as incurred. Upon sale or retirement of assets, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operations.

Property and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.  If property and equipment are considered to be impaired, an impairment loss is recognized.

Revenue Recognition

Product Revenue:  The Company derives product revenues from sales of OVA1 through Quest Diagnosticsand ASPiRA LABS.  Product revenues are recognized for tests performed when the following revenue recognition criteria are met: (1) persuasiveevidence that 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.

Revenue for contractual clients is being recognized when the OVA1 test is being performed as criteria for revenue recognition has been met. As the Company has not established sufficient payment history with the insurance companies or private payers for the tests performed at ASPiRA LABS, payment is not fixed or determinable and collectability is not reasonably assured, and it will not recognize revenue until those criteria are met, which typically coincides with the collection of cash.  All costs incurred for tests performed at ASPiRA LABS are expensed as incurred. Once the Company establishes a reliable payment history, it plans to return to normal accrual revenue recognition based on its criteria discussed above.

License Revenue:  Under the terms of the secured line of credit with Quest Diagnostics, which was terminated on March 11, 2015, portions of the borrowed principal amounts were forgiven upon achievement of certain milestones relating to the development, regulatory approval and commercialization of certain diagnostic tests (see Note 3).  The Company accounted for forgiveness of principal debt balances as license revenues over the term of the exclusive sales period that Quest Diagnostics received upon commercialization of an approved diagnostic test as the Company did not have a sufficient history of product sales that provided a reasonable basis for estimating future product sales.  License revenue was recognized on a straight-line basis over the original remaining period of Quest Diagnostics’ sales exclusivity ending in September 2015.  The disputed exclusivity was formally terminated with Quest Diagnostics on March 11, 2015, and thus the remaining balance of deferred license revenue totaling $316,000 was recognized as of that date.

Research and Development Costs

Research and development costs are expensed as incurred.  Research and development costs consist primarily of payroll and related costs, materials and supplies used in the development of new products, and fees paid to third parties that conduct certain research and development activities on the Company’s behalf. In addition, acquisitions of assets to be consumed in research and development are expensed as incurred as research and development costs. Software development costs incurred in the research and development of new products are expensed as incurred until technological feasibility is established.

Patent Costs

Costs incurred in filing, prosecuting and maintaining patents (principally legal fees) are expensed as incurred and recorded within selling, general and administrative expenses on the Consolidated Statements of Operations. Such costs aggregated approximately $215,000 and $380,000 for the years ended December 31, 2015 and 2014, respectively.

Stock-Based Compensation

The Company records the fair value of non-cash stock-based compensation costs for stock options and stock purchase rights related to the Amended and Restated 2010 Stock Incentive Plan, as amended (the “2010 Plan”). The Company estimates the fair value of stock options using a Black-Scholes option valuation model which requires the input of subjective assumptions including expected stock price volatility, expected life and estimated forfeitures of each award. These assumptions consist of estimates of future market conditions, which are inherently uncertain, and therefore are subject to management's judgment.

The expected life of options is based on historical data of actual experience with the options granted and represents the period of time that the options granted are expected to be outstanding.  This data includes employees’ expected exercise and post-vesting employment termination behaviors.  The expected stock price volatility is estimated using a combination of historical and peer group volatility for a blended volatility in deriving the expected volatility assumption.  The Company made an assessment that blended volatility is more representative of future stock price trends than just using historical or peer group volatility, which corresponds to the expected life of the options.  The expected dividend yield is based on the estimated annual dividends that is expected to be paid over the expected life of the options as a percentage of the market value of Vermillion common stock as of the grant date.  The risk-free interest rate for the expected life of the options granted is based on the United States Treasury yield curve in effect as of the grant date.  The Company uses the straight-line method to amortize the fair value over the vesting period of the award.

The Company also records the fair value of non-cash stock-based compensation costs for equity instruments issued to non-employees. The cost for these options is recalculated each reporting period using a Black-Scholes option valuation model. A change in assumptions used in the calculations, including changes in the fair value of common stock, can result in significant changes in the amounts recorded from one reporting period to another.

Contingencies

The Company accounts for contingencies in accordance with ASC 450 Contingencies ("ASC 450") which requires that an estimated loss from a loss contingency be accrued when (i) information available prior to issuance of the financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and (ii) when the amount of the loss can be reasonably estimated. Accounting for contingencies such as legal and contract dispute matters requires the use of management’s judgment. Management believes that the Company’s accruals for these matters are adequate. Nevertheless, the actual loss from a loss contingency might differ from management’s estimates.

Income Taxes

The Company accounts for income taxes using the liability method.  Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and the tax bases of assets and liabilities using the current tax laws and rates. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized.

ASC Topic 740, Income Taxes clarifies the accounting for uncertainty in income taxes recognized in the financial statements and provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, and disclosure.

The Company recognizes interest and penalties related to unrecognized tax benefits within the interest expense line and other expense line, respectively, in the Consolidated Statements of Operations. Accrued interest and penalties are included within the related liability lines in the Consolidated Balance Sheets.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of common stock adjusted for the dilutive effect of common stock equivalent shares outstanding during the period.  Common stock equivalents consist of stock options, restricted stock units and stock warrants. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect on earnings per share.

Fair Value of Financial Instruments

Financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and short-term debt. The estimated fair value of financial instruments has been determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value; therefore, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. The effect of using different market assumptions and/or estimation methodologies may be material to the estimated fair value amounts. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and short-term debt are at cost, which approximates fair value due to the short maturity of those instruments.

Segment Reporting

The Company operates one reportable segment.

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Recent Accounting Pronouncements

12 Months Ended

Dec. 31, 2015

New Accounting Pronouncements [Abstract]

New Accounting Pronouncements

NOTE 2:Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the “FASB”)issued ASU 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of the pending adoption of the new standard on the consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11 Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU No. 2015-11”). ASU 2015-11 changes the measurement of inventory from the lower of cost or market to the lower of cost and net realizable value. The amendments are effective prospectively for the fiscal years, and interim reporting periods within those years, beginning on or after December 15, 2016. The Company does not anticipate a material impact on its consolidated financial statements from the adoption of this ASU.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern (“ASU 2014-15”).  This ASU explicitly requires management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. In connection with each annual and interim period, management will assess if there is substantial doubt about an entity’s ability to continue as a going concern within one year after the issuance date. Management will consider relevant conditions that are known, and reasonably knowable, at the issuance date. Substantial doubt exists if it is probable that the entity will be unable to meet its obligations within one year after the issuance date. Disclosures will be required if conditions give rise to substantial doubt. The new standard will be effective for all entities in the first annual period ending after December15, 2016. Early adoption is permitted. Upon adoption management will evaluate the Company’s ability to continue as a going concern based on this guidance.

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

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Strategic Alliance And Secured Line Of Credit With Quest Diagnostics Incorporated

12 Months Ended

Dec. 31, 2015

Strategic Alliance And Secured Line Of Credit With Quest Diagnostics Incorporated [Abstract]

Strategic Alliance And Secured Line Of Credit With Quest Diagnostics Incorporated

NOTE 3:Strategic Alliance And Secured Line Of Credit with Quest Diagnostics Incorporated

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

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

On March 11, 2015, the Company reached a settlement agreement with Quest Diagnostics that terminated all disputes related to the Strategic Alliance Agreement and the Company’s prior loan agreement with Quest Diagnostics. The Company also entered into a new commercial agreement with Quest Diagnostics. Pursuant to this agreement, all OVA1 U.S. testing services for Quest Diagnostics customers were transferred to Vermillion’s wholly-owned subsidiary, ASPiRA LABS, as of August 10, 2015, with the exception of a nominal number of OVA1 tests distributed through Quest Diagnostics after that date. Quest Diagnostics is continuing to provide blood draw and logistics support by transporting specimens from its clients to ASPiRA LABS for testing through at least March 11, 2017 in exchange for a market value fee. Per the terms of the new commercial agreement, the Company will not offer to existing or future Quest Diagnostics customers CA 125-II or other tests that Quest Diagnostics offers.

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

Accounts receivable from Quest Diagnostics totaled $1,000 and $167,000 at December 31, 2015 and 2014, respectively.

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Property And Equipment

12 Months Ended

Dec. 31, 2015

Property And Equipment [Abstract]

Property And Equipment

Note 4:       Property and Equipment

The components of property and equipment as of December 31, 2015 and 2014 were as follows:

	December 31,
(in thousands)		2015		2014
Machinery and equipment	$	841	$	563
Demonstration equipment		39		38
Computer equipment and software		428		291
Furniture and fixtures		41		68
Leasehold improvements		36		-
Construction in progress		773		-
Gross property and equipment		2,158		960
Accumulated depreciation and amortization		(654)		(452)
Property and equipment, net	$	1,504	$	508

Depreciation expense for property and equipment was $291,000 and $141,000 for the years ended December 31, 2015 and 2014, respectively. The accumulated amortization of assets under capital lease obligations was $39,000 and the net book value of assets under capital lease obligations was $193,000 as of December 31, 2015. There were no assets under capital lease obligations as of December 31, 2014.

Construction in progress represented $289,000 in leasehold improvements and $484,000 in information technology build-out at our Trumbull, Connecticut facility. The facility was occupied and in operation beginning in January 2016. Proceeds from the DECD development loan (discussed in Note 6) will be used for the Trumbull, Connecticut facility.

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Accured Liabilities

12 Months Ended

Dec. 31, 2015

Accrued Liabilities [Abstract]

Accrued Liabilities

NOTE 5:Accrued Liabilities

The components of accrued liabilities as of December31, 2015 and 2014 were as follows:

	December 31,
(in thousands)	2015		2014
Payroll and benefits related expenses	$	798	$	905
Collaboration and research agreements expenses		339		338
Professional services		717		598
Tax-related liabilities		40		23
Other accrued liabilities		314		337
Total accrued liabilities	$	2,208	$	2,201

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Commitments And Contingencies

12 Months Ended

Dec. 31, 2015

Commitments And Contingencies [Abstract]

Commitments And Contingencies

NOTE 6:Commitments and Contingencies

As of December 31, 2015, the annual amounts of future minimum payments under certain of the Company’s contractual obligations were:

		Payments Due by Period
(in thousands)		Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Operating Leases	$	804	$	212	$	292	$	246	$	54
Capital Leases		475		322		143		10		-
Collaboration Costs		125		125		-		-		-
Total accrued liabilities	$	1,404	$	659	$	435	$	256	$	54

In addition, the Company has minimum royalty obligations (described below in non-cancelable collaboration obligations and other commitments) and minimum quantities of reagent purchases from the manufacturer of certain laboratory instruments.

Development Loan

On March 22, 2016, the Company entered into an agreement (the “Agreement”) with the DECD, pursuant to which the Company may borrow up to $4,000,000 from the DECD.  Proceeds from the loan are to be utilized primarily to fund the build-out, information technology infrastructure and other costs related to the Company’s Trumbull, Connecticut facility and operations.  The loan bears interest at a fixed rate of 2.0% per annum and requires equal monthly payments of principal and interest until maturity, which is 10 years from the initial funding date.  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 Agreement, the Company may be eligible for forgiveness of up to $2,000,000 of the principal amount of the loan if the Company achieves certain job creation and retention milestones by March 1, 2018.  If the Company is unable to meet these job creation milestones within the allotted timeframe or does not maintain the Company’s Connecticut operations for a period of 10 years, the DECD may require early repayment of a portion or all of the loan depending on job attainment as compared to the required amount.

Under the Agreement, an initial disbursement of $2,000,000 will be made to the Company after final State of Connecticut approval and satisfaction of customary closing conditions.  The Agreement provides that the remaining $2,000,000 will be advanced if and when the Company achieves certain future milestones. The loan may be prepaid at any time without premium or penalty.

Operating Leases

The Company leases facilities to support its business of discovering, developing and commercializing diagnostic tests in the fields of gynecologic disease, including its principal facility and CLIA laboratory located in Austin, Texas.  As of December 31, 2015 there were three Austin, Texas leases which included an aggregate annual base rent of $131,000 and annual estimated common area charges, taxes and insurance of $62,000.  The lease which includes the CLIA laboratory expires on May 31, 2017 and an additional lease is month to month and requires 90 days’ notice to cancel.  The Company exited the third lease on February 29, 2016.

In October 2015, the Company entered a lease agreement for a facility in Trumbull, Connecticut.  The lease includes initial payments for the buildout of leasehold improvements to the office space, which are estimated to be approximately $438,000. 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 $91,000.    Rental expense under operating leases for the years ended December 31, 2015 and 2014 totaled $190,000and $130,000, respectively.

CapitalLease

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

The accumulated amortization of assets under capital lease obligations was $39,000 and the net book value of assets under capital lease obligations was $193,000 as of December 31, 2015. There were no assets under capital lease obligations as of December 31, 2014.

Non-cancelable Collaboration Obligations and Other Commitments

The Company has a research collaboration agreement with The Johns Hopkins University School of Medicine (“JHU”) 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. This agreement expires on March 31, 2016.  Collaboration expenses under the JHU collaboration were $600,000 and $1,323,000 for the years ended December 31, 2015 and 2014, respectively.  Collaboration expenses under the JHU collaboration are included in research and development expenses.  In addition, 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 years ended December 31, 2015 and 2014 totaled $74,000and $83,000, respectively.

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 adverse outcome of which would have a material adverse effect on the Company’s financial position or results of operations.

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Common Stock

12 Months Ended

Dec. 31, 2015

Common Stock [Abstract]

Common Stock

NOTE 7:Common Stock

2015 Registered Offering

On July 17, 2015 the Company completed the sale of 9,602,500 shares of Vermillion common stock, including 1,252,500 shares sold pursuant to the full exercise of the underwriters' option to purchase additional shares, in an underwritten public offering at a price of $1.96 per share. The Company received net proceeds from the offering of $17,495,000 after deducting underwriting discounts and offering expenses.

2014 Private Placement Sale

On December 23, 2014, the Company completed a private placement pursuant to which certain investors purchased 6,944,445 shares of Vermillion common stock at a price of $1.44 per share. Vermillion also issued warrants to purchase shares of common stock at a price of $0.125 per warrant share in the private placement. Net proceeds of the private placement were approximately $10,288,000 after deducting offering expenses. The warrants are exercisable for 4,166,659 shares of Vermillion common stock at $2.00 per share and expire on December 23, 2017.

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 $2,970,000 and to the common stock is $7,311,000.

Other 2014 Equity Offerings

In October 2014, the Company established an at-the-market offering program, pursuant to which it may offer and sell, from time to time, shares of Company common stock having an aggregate offering price of up to $15,000,000. The Company is obligated to pay a commission of up to 3.0% of the gross proceeds from the sale of shares of Vermillion common stock in the offering. The Company is not obligated to sell any shares in the offering. During the year ended December 31, 2014, approximately 48,473 shares of the Vermillion common stock were sold under the program for aggregate proceeds of $75,000  (no net proceeds after deducting offering costs). The Company suspended the program on December 24, 2014.

Warrants

Warrants outstanding as of December 31, 2015 and 2014 were as follows:

		Exercise Price	Number of Shares Outstanding under Warrant
Issuance Date	Expiration Date	per Share	December 31, 2015	December 31, 2014
May 1, 2013	April 30, 2015	$             1.88	-	21,000
May 13, 2013	May 13, 2016	$             1.46	413,359	413,359
November 1, 2013	October 31, 2015	$             3.89	-	21,000
May 1, 2014	April 30, 2016	$             4.70	7,000	7,000
December 23, 2014	December 23, 2017	$             2.00	4,166,659	4,166,659
			4,587,018	4,629,018

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Loss Per Share

12 Months Ended

Dec. 31, 2015

Loss Per Share [Abstract]

Loss Per Share

NOTE 8:Loss Per Share

The reconciliation of the numerators and denominators of basic and diluted loss per share for the years ended December31, 2015 and 2014 was as follows:

	Loss		Shares	Per Share
(In thousands, except per share data)	(Numerator)		(Denominator)	Amount
Year ended December 31, 2014:
Net loss - basic	$	(19,209)	36,082,414	$	(0.53)
Dilutive effect of common stock shares issuable upon exercise of stock options, exercise of warrants, and unvested restricted stock awards		-	-
Net loss - diluted	$	(19,209)	36,082,414	$	(0.53)
Year ended December 31, 2015:
Net loss - basic	$	(19,115)	47,124,261	$	(0.41)
Dilutive effect of common stock shares issuable upon exercise of stock options, exercise of warrants, and unvested restricted stock awards		-	-
Net loss - diluted	$	(19,115)	47,124,261	$	(0.41)

Due to net losses for the years ended December31, 2015 and 2014, diluted loss per share is calculated using the weighted average number of common shares outstanding and excludes the effects of potential shares of common stock  that are antidilutive. 

The potential shares of common stock that have been excluded from the diluted loss per share calculation above for the years ended December31, 2015 and 2014 were as follows:

	Year Ended December 31,
	2015	2014
Stock options	3,317,811	1,711,046
Stock warrants	4,587,018	4,629,018
Potential common shares	7,904,829	6,340,064

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2015

Employee Benefit Plans [Abstract]

Employee Benefit Plans

NOTE 9:Employee Benefit Plans

2000 Stock Plan

Under the Amended and Restated 2000 Stock Plan (the “2000 Plan”), options could be granted at prices not lower than 85% and 100% of the fair market value of the common stock for non-statutory and statutory stock options, respectively.  Options generally vest monthly over a period of four years and unexercised options generally expire ten years from the date of grant.  The authority of Vermillion’s Board of Directors to grant new stock options and awards under the 2000 Plan terminated in 2010.  There were no stock options under the 2000 Stock Plan exercised during the year ended December 31, 2015. Options to purchase 15,000 shares of common stock were exercised during the year ended December 31, 2014. No additional shares of common stock were reserved for future option grants under the 2000 Plan.

2010 Stock Incentive Plan

Under the 2010 Plan, employees, directors and consultants of the Company are eligible to receive awards. The 2010 Plan is administered by the Compensation Committee of the Vermillion Board of Directors. 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. On June 18, 2015, the Company’s stockholders approved an increase of 4,500,000 in the number of shares available for issuance under the 2010 Plan for a total of 8,122,983 shares.Unexercised options generally expire ten years from the date of grant. Options to purchase 59,583 and 163,490 shares of common stock were exercised during the year ended December 31, 2015 and 2014, respectively.

During the year ended December 31, 2015, the Company issued to the Vermillion Board of Directors 195,781 shares of restricted stock from the 2010 Plan having a fair value of $401,000 as payment for services rendered in 2015. During the year ended December 31, 2014, the Company issued to the Vermillion Board of Directors 103,500 shares of restricted stock from the 2010 Plan having a fair value of $320,000 as payment for services rendered in 2014.

Subsequent to December 31, 2015, the Company awarded 226,000 shares of restricted stock from the 2010 Plan having a fair value of approximately $354,000 to Vermillion’s Board of Directors as payment for services in 2016.  The restricted stock vests 50% on June 1, 2016 and 25% each on September 1, 2016 and December 1, 2016.  The Company also granted approximately 1,024,000 stock options with an exercise price of approximately $1.57 per share to certain Vermillion officers, employees and consultants.  These stock options generally vest 25% on each of the four anniversaries of the grant date. In addition, the Company granted certain officers and consultants options to purchase 300,000 shares of Vermillion common stock with an exercise price of approximately $1.57 per share with performance-based vesting based on certain metrics through December 31, 2016.

The activity related to shares available for grant under the 2000 Plan and the 2010 Plan for the years ended December31, 2015 and 2014 was as follows:

	2000 Stock Plan	2010 Stock Option Plan	Total
Shares available at December 31, 2013	-	1,420,441	1,420,441
Options canceled	124,397	945,826	1,070,223
Reduction in shares reserved	(124,397)	-	(124,397)
Options granted	-	(1,512,000)	(1,512,000)
Restricted stock units granted	-	(128,500)	(128,500)
Restricted stock units canceled	-	11,667	11,667
Shares available at December 31, 2014	-	737,434	737,434
Shares added		4,500,000	4,500,000
Options canceled	3,800	69,352	73,152
Reduction in shares reserved	(3,800)	-	(3,800)
Options granted	-	(1,739,500)	(1,739,500)
Restricted stock units granted	-	(195,781)	(195,781)
Shares available at December 31, 2015	-	3,371,505	3,371,505

The stock option activity under the 2000 Plan and 2010 Plan for the years ended December31, 2015 and 2014 was as follows:

	Number of Shares	Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual  Term
Options outstanding at December 31, 2013	1,447,968	$	3.36	$	780	7.94
Granted	1,512,000		2.58
Exercised	(178,699)		1.34
Canceled	(1,070,223)		3.77
Options outstanding at December 31, 2014	1,711,046	$	2.62	$	178	7.82
Granted	1,739,500		1.99
Exercised	(59,583)		1.62
Canceled	(73,152)		3.29
Options outstanding at December 31, 2015	3,317,811	$	2.29	$	91	8.24
Shares exercisable:
December 31, 2015	1,087,139	$	2.69	$	39	6.50
Shares expected to vest:
December 31, 2015	1,829,151	$	2.09	$	52	9.09

The range of exercise prices for options outstanding and exercisable at December31, 2015 is as follows:

	Exercise Price				Options Outstanding		Weighted  Average Exercise Price	Weighted Average  Remaining Life in Years	Options Exercisable		Weighted Average Exercise Price
$	0.01	-	$	1.30	30,000	$	1.30	8.95	8,801	$	1.30
	1.31	-		2.12	2,363,000		1.94	8.49	561,101		1.88
	2.13	-		3.09	702,875		2.70	7.85	364,545		2.80
	3.10	-		9.92	204,650		3.48	7.29	135,406		3.54
	9.93	-		28.65	17,286		20.97	0.77	17,286		20.97
$	0.01	-	$	28.65	3,317,811	$	2.29	8.24	1,087,139	$	2.69

(in thousands)		Total Intrinsic Value of Options Exercised		Total Fair Value of Vested Options
Year ended December 31, 2015	$	13	$	1,864
Year ended December 31, 2014	$	55	$	655

Stock-based Compensation

Employee Stock-based Compensation Expense

The assumptions used to calculate the fair value of options granted under the 2010 Plan that were incorporated in the Black-Scholes pricing model for the years ended December31, 2015 and 2014 were as follows:

	Year Ended December 31,
	2015			2014
Dividend yield		-	%		-	%
Volatility		78	%		80	%
Risk-free interest rate		1.76	%		1.92	%
Expected lives (years)		6.0			6.0
Weighted average fair value	$	1.37		$	1.78

The allocation of employee stock-based compensation expense by functional area for the years ended December31, 2015 and 2014 was as follows:

	Year Ended December 31,
(in thousands)		2015		2014
Cost of Sales	$	40	$	1
Research and development		137		136
Sales and marketing		209		259
General and administrative		825		741
Total	$	1,211	$	1,137

As of December31, 2015, total unrecognized compensation cost related to unvested stock option awards was approximately $2,464,000and the related weighted average period over which it is expected to be recognized was 2.24 years.

401(k)Plan

The Company’s 401(k) Plan allows eligible employees to defer up to an annual limit of the lesser of 90.0% of eligible compensation or a maximum contribution amount subject to the Internal Revenue Service annual contribution limit.  The Company is not required to make contributions under the 401(k) Plan.  During the years ended December 31, 2015 and 2014, the Company did not contribute to the 401(k) Plan.

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Income Taxes

12 Months Ended

Dec. 31, 2015

Income Taxes [Abstract]

Income Taxes

NOTE 10:Income Taxes

There was no income tax expense or benefit for the years ended December 31, 2015 or 2014 because of net losses during those years. These net losses were generated from domestic operations.

Based on the available objective evidence and uncertainty about the timing and amount of any future profits, the Company has provided a full valuation allowance against our net deferred tax assets at December 31, 2015 and 2014.  

The components of net deferred tax assets at December 31, 2015 and 2014 were as follows:

	Year Ended December 31,
(in thousands)	2015		2014
Deferred tax assets:
Net operating losses	$	65,341	$	58,276
Amortization - R&D intangibles		5,919		6,227
Other		3,007		2,936
Total deferred tax assets		74,267		67,439
Valuation allowance		(74,267)		(67,431)
Deferred tax assets	$	-	$	8
Deferred tax liabilities:
Other	$	-	$	(8)
Deferred tax liabilities	$	-	$	(8)
Net deferred tax asset	$	-	$	(0)

The reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2015 and 2014 was as follows:

	Year Ended December 31,
	2015		2014
Tax at federal statutory rate	34	%	34	%
State tax, net of federal benefit	2		1
Valuation allowance	(36)		(16)
Change in warrant valuation	-		-
Net operating loss and credit reduction due to section 382 limitations	-		-
Permanent items	(1)		(3)
Other	1		(16)
Effective income tax rate	-	%	-	%

As of December 31, 2015, the Company had pre-tax net operating loss carryforwards of approximately $185,000,000 for federal and $160,000,000 for state tax purposes.  If not utilized, these carryforwards begin to expire in 2025 for federal purposes and 2016 for state purposes. In 2016, approximately $5,000,000 of the Company’s state net operating loss will expire.

The Company’s ability to use net operating loss and tax credit carryforwards may be restricted due to ownership change limitations, as required by Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”), as well as similar state provisions. These limitations may reduce the amount of net operating loss and tax credit carryforwards that can be utilized annually to offset future taxable income and tax and may result in the expiration of a portion of the net operating loss and credit carryforwards before utilization. Such limitations, if any, will only impact the results of operations or financial position when and if the valuation allowance is eliminated.

The Company believes that Section 382 ownership changes occurred as a result of the follow-on public common stock offering in 2011, 2013, and 2015.  

The valuation allowance was $74,000,000 and $67,000,000 at December 31, 2015 and 2014, respectively. The increase of $7,000,000 between 2015 and 2014 is primarily due to increased net operating loss carryforwards.

The Company files income tax returns in the U.S. and in various state jurisdictions with varying statutes of limitations. The Company has not been audited by the Internal Revenue Service or any state income or franchise tax agency. As of December 31, 2015,  the Company’s federal returns for the years ended 2012 through 2015 and most state returns for the years ended 2011 through 2015 are still open to examination. In addition, all net operating loss carryforwards and research and development credit carryforwards are subject to Internal Revenue Service audit.

The Company’s net deferred tax assets exclude unrecognized tax benefits for research and development credit carryforwards. A reconciliation of the change in the Company’s unrecognized tax benefits is as follows:

(in thousands)		Federal Tax		State Tax		Total
Balance at December 31, 2013	$	5,040	$	5,024	$	10,064
Increase in tax position during 2014		148		111		259
Decrease due to expirations		-		-		-
Balance at December 31, 2014	$	5,188	$	5,135	$	10,323
Increase in tax position during 2015		147		110		257
Decrease due to expirations		-		-		-
Balance at December 31, 2015	$	5,335	$	5,245	$	10,580

If the $10,580,000 of unrecognized income tax benefit is recognized, approximately $10,580,000would impact the effective tax rate in the period in which each of the benefits is recognized.

The Company recognizes interest and penalties related to unrecognized tax benefits within the interest expense line and other expense line, respectively, in the consolidated statement of operations. The Company has not recorded any interest or penalties as a result of uncertain tax positions as of December 31, 2015 and 2014. Accrued interest and penalties would be included within the related liability in the consolidated balance sheet.

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Related Party Transactions

12 Months Ended

Dec. 31, 2015

Related Party Transactions [Abstract]

Related Party Transactions

NOTE 11:Related Party Transactions

On January 18, 2016, the Company entered into a consulting agreement with David Schreiber, a member of Vermillion’s Board of Directors.  Pursuant to the terms of the consulting agreement, Mr. Schreiber will provide consulting services regarding business strategies and operational plans and willbe paid $375 per hour or a minimum of $51,750 for the period up to the expiration of the agreement on March 31, 2016.  On October 10, 2014, the Company entered into a consulting agreement with David Schreiber, a member of Vermillion’s Board of Directors.  Pursuant to the terms of the consulting agreement, Mr. Schreiber provided consulting services regarding finance and corporate strategy and was paid $375 per hour.  For the year ended December 31, 2014, the total amount of consulting fee expense for Mr. Schreiber was $22,375.

On October 23, 2014, the Company appointed Valerie Palmieri as Chief Operating Officer (“COO”). Vermillion was party to a consulting agreement with a company owned by Ms. Palmieri to provide laboratory operations and commercialization consulting services to Vermillion.  The Company made payments of $340,000 for services provided pursuant to the consulting agreement through September 30, 2014. The consulting agreement was terminated as of October 23, 2014. In connection with the work performed under the consulting agreement, the Company granted Ms. Palmieri 15,000 shares of restricted stock under the 2010 Plan having a fair value of approximately $31,000 for achievement of certain milestones. Ms. Palmieri was named President and Chief Executive Officer effective January 1, 2015.

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Basis Of Presentation And Summary Of Significant Accounting And Reporting Policies (Policy)

12 Months Ended

Dec. 31, 2015

Basis Of Presentation And Summary Of Significant Accounting And Reporting Policies [Abstract]

Organization

Organization

Vermillion, Inc. (“Vermillion”; Vermillion and its wholly-owned subsidiaries are collectively referred to as the “Company”) is incorporated in the state of Delaware, and is engaged in the business of developing and commercializing diagnostic tests for gynecologic disease.  The Company sells OVA1™ risk of malignancy test for pelvic mass disease (“OVA1”). Until August 10, 2015, the Company distributed OVA1 through Quest Diagnostics Incorporated (“Quest Diagnostics”) (see Note 3). Since August 10, 2015, the Company has distributed all but a nominal number of OVA1 tests through Vermillion’s wholly-owned Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) certified clinical laboratory, ASPiRA LABS, Inc. (“ASPiRA LABS”), which opened in June 2014.

Liquidity

Liquidity

On December 23, 2014, the Company completed a private placement pursuant to which certain investors purchased 6,944,445 shares of Vermillion common stock at a price of $1.44 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 $10,288,000 after deducting offering expenses. The warrants are exercisable for 4,166,659 shares of Vermillion common stock at $2.00 per share and expire on December 23, 2017.

On July 17, 2015 the Company completed the sale of 9,602,500 shares of Vermillion common stock, at a price to the public of $1.96 per share, including 1,252,500 shares sold pursuant to the full exercise of the underwriters' option to purchase additional shares, in an underwritten public offering at a price of $1.96 per share. Net proceeds from the offering were approximately $17,495,000 after deducting underwriting discounts and offering expenses.

As discussed in Note 6, on March 22, 2016, the Company entered into an agreement pursuant to which it may borrow up to $4,000,000 from the State of Connecticut Department of Economic and Community Development (“DECD”). Initial gross proceeds of $2,000,000 are due after final State of Connecticut approval and satisfaction of customary closing conditions.  The remaining $2,000,000 will be advanced if and when the Company achieves certain future milestones.

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 $370,588,000 at December 31, 2015. The Company expects to incur a net loss in 2016 and the foreseeable future. The Company’s management believes that successful achievement of the business objectives will require additional financing.  The Company expects to raise capital through a variety of sources, which may include the public equity market, private equity financing, collaborative arrangements, licensing arrangements, and/or public or private debt. However, additional funding may not be available when needed or on terms acceptable to the Company. If the Company is unable to obtain additional capital, it may not be able to continue sales and marketing, research and development, or other operations on the scope or scale of current activity and that could have a material adverse effect on the business, results of operations and financial condition.

There can be no assurance that the Company will achieve or sustain profitability or positive cash flow from operations.  However, management believes that the current working capital position as of the date of these financial statements will be sufficient to meet the Company’s working capital needs for at least the next twelve months. Management expects cash from product sales to be the Company’s only material, recurring source of cash in 2016.

Basis Of Consolidation

Basis of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.  All intercompany transactions have been eliminated in consolidation

Use Of Estimates

Use of Estimates

The preparation of consolidated financial statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  The primary estimates underlying the Company’s consolidated financial statements include assumptions regarding variables used in calculating the fair value of the Company’s equity awards, income taxes and contingent liabilities.  Actual results could differ from those estimates.

Cash And Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments with maturities of three months or less from the date of purchase, which are readily convertible into known amounts of cash and are so near to their maturity that they present an insignificant risk of changes in value because of interest rate changes.  Highly liquid investments that are considered cash equivalents include money market funds, certificates of deposits, treasury bills and commercial paper.  The carrying value of cash equivalents approximates fair value due to the short-term maturity of these securities.

Fair Value Measurement

Fair Value Measurement

Accounting Standards Codification (“ASC”)Topic 820,Fair Value and Measurements (“ASC 820”), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation.

Concentration Of Credit Risk

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents and accounts receivable.  The Company maintains cash and cash equivalents in recognized financial institutions in the United States.  The funds are insured by the FDIC up to a maximum of $250,000, but are otherwise unprotected.  The Company has not experienced any losses associated with deposits of cash and cash equivalents.  The Company does not invest in derivative instruments or engage in hedging activities.

Accounts Receivable

Accounts receivable

Accounts receivable are derived from sales made to customers located in North America.  The Company performs ongoing credit evaluations of its customer’s financial condition and generally does not require collateral.  The Company maintains an allowance for doubtful accounts based upon the expected collectability of accounts receivable.  Accounts receivable at December 31, 2015 was from 14 customers.  Accounts receivable at December 31, 2014 was from one customer.

Property And Equipment

Property and Equipment

Property and equipment are carried at cost less accumulated depreciation and amortization. Property and equipment are depreciated when placed into service using the straight-line method over the estimated useful lives, generally three to five years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the remaining term of the lease. Maintenance and repairs are charged to operations as incurred. Upon sale or retirement of assets, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operations.

Property and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.  If property and equipment are considered to be impaired, an impairment loss is recognized.

Revenue Recognition

Revenue Recognition

Product Revenue:  The Company derives product revenues from sales of OVA1 through Quest Diagnosticsand ASPiRA LABS.  Product revenues are recognized for tests performed when the following revenue recognition criteria are met: (1) persuasiveevidence that 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.

Revenue for contractual clients is being recognized when the OVA1 test is being performed as criteria for revenue recognition has been met. As the Company has not established sufficient payment history with the insurance companies or private payers for the tests performed at ASPiRA LABS, payment is not fixed or determinable and collectability is not reasonably assured, and it will not recognize revenue until those criteria are met, which typically coincides with the collection of cash.  All costs incurred for tests performed at ASPiRA LABS are expensed as incurred. Once the Company establishes a reliable payment history, it plans to return to normal accrual revenue recognition based on its criteria discussed above.

License Revenue:  Under the terms of the secured line of credit with Quest Diagnostics, which was terminated on March 11, 2015, portions of the borrowed principal amounts were forgiven upon achievement of certain milestones relating to the development, regulatory approval and commercialization of certain diagnostic tests (see Note 3).  The Company accounted for forgiveness of principal debt balances as license revenues over the term of the exclusive sales period that Quest Diagnostics received upon commercialization of an approved diagnostic test as the Company did not have a sufficient history of product sales that provided a reasonable basis for estimating future product sales.  License revenue was recognized on a straight-line basis over the original remaining period of Quest Diagnostics’ sales exclusivity ending in September 2015.  The disputed exclusivity was formally terminated with Quest Diagnostics on March 11, 2015, and thus the remaining balance of deferred license revenue totaling $316,000 was recognized as of that date.

Research And Development Costs

Research and Development Costs

Research and development costs are expensed as incurred.  Research and development costs consist primarily of payroll and related costs, materials and supplies used in the development of new products, and fees paid to third parties that conduct certain research and development activities on the Company’s behalf. In addition, acquisitions of assets to be consumed in research and development are expensed as incurred as research and development costs. Software development costs incurred in the research and development of new products are expensed as incurred until technological feasibility is established.

Patent Costs

Patent Costs

Costs incurred in filing, prosecuting and maintaining patents (principally legal fees) are expensed as incurred and recorded within selling, general and administrative expenses on the Consolidated Statements of Operations. Such costs aggregated approximately $215,000 and $380,000 for the years ended December 31, 2015 and 2014, respectively.

Stock-Based Compensation

Stock-Based Compensation

The Company records the fair value of non-cash stock-based compensation costs for stock options and stock purchase rights related to the Amended and Restated 2010 Stock Incentive Plan, as amended (the “2010 Plan”). The Company estimates the fair value of stock options using a Black-Scholes option valuation model which requires the input of subjective assumptions including expected stock price volatility, expected life and estimated forfeitures of each award. These assumptions consist of estimates of future market conditions, which are inherently uncertain, and therefore are subject to management's judgment.

The expected life of options is based on historical data of actual experience with the options granted and represents the period of time that the options granted are expected to be outstanding.  This data includes employees’ expected exercise and post-vesting employment termination behaviors.  The expected stock price volatility is estimated using a combination of historical and peer group volatility for a blended volatility in deriving the expected volatility assumption.  The Company made an assessment that blended volatility is more representative of future stock price trends than just using historical or peer group volatility, which corresponds to the expected life of the options.  The expected dividend yield is based on the estimated annual dividends that is expected to be paid over the expected life of the options as a percentage of the market value of Vermillion common stock as of the grant date.  The risk-free interest rate for the expected life of the options granted is based on the United States Treasury yield curve in effect as of the grant date.  The Company uses the straight-line method to amortize the fair value over the vesting period of the award.

The Company also records the fair value of non-cash stock-based compensation costs for equity instruments issued to non-employees. The cost for these options is recalculated each reporting period using a Black-Scholes option valuation model. A change in assumptions used in the calculations, including changes in the fair value of common stock, can result in significant changes in the amounts recorded from one reporting period to another.

Contingencies

Contingencies

The Company accounts for contingencies in accordance with ASC 450 Contingencies ("ASC 450") which requires that an estimated loss from a loss contingency be accrued when (i) information available prior to issuance of the financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and (ii) when the amount of the loss can be reasonably estimated. Accounting for contingencies such as legal and contract dispute matters requires the use of management’s judgment. Management believes that the Company’s accruals for these matters are adequate. Nevertheless, the actual loss from a loss contingency might differ from management’s estimates.

Income Taxes

Income Taxes

The Company accounts for income taxes using the liability method.  Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and the tax bases of assets and liabilities using the current tax laws and rates. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized.

ASC Topic 740, Income Taxes clarifies the accounting for uncertainty in income taxes recognized in the financial statements and provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, and disclosure.

The Company recognizes interest and penalties related to unrecognized tax benefits within the interest expense line and other expense line, respectively, in the Consolidated Statements of Operations. Accrued interest and penalties are included within the related liability lines in the Consolidated Balance Sheets.

Net Loss Per Share

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of common stock adjusted for the dilutive effect of common stock equivalent shares outstanding during the period.  Common stock equivalents consist of stock options, restricted stock units and stock warrants. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect on earnings per share.

Fair Value Of Financial Instruments

Fair Value of Financial Instruments

Financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and short-term debt. The estimated fair value of financial instruments has been determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value; therefore, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. The effect of using different market assumptions and/or estimation methodologies may be material to the estimated fair value amounts. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and short-term debt are at cost, which approximates fair value due to the short maturity of those instruments.

Segment Reporting

Segment Reporting

The Company operates one reportable segment.

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Property And Equipment (Tables)

12 Months Ended

Dec. 31, 2015

Property And Equipment [Abstract]

Components Of Property And Equipment

	December 31,
(in thousands)		2015		2014
Machinery and equipment	$	841	$	563
Demonstration equipment		39		38
Computer equipment and software		428		291
Furniture and fixtures		41		68
Leasehold improvements		36		-
Construction in progress		773		-
Gross property and equipment		2,158		960
Accumulated depreciation and amortization		(654)		(452)
Property and equipment, net	$	1,504	$	508

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Accurued Liabilities (Tables)

12 Months Ended

Dec. 31, 2015

Accrued Liabilities [Abstract]

Components Of Accrued Liabilities

	December 31,
(in thousands)	2015		2014
Payroll and benefits related expenses	$	798	$	905
Collaboration and research agreements expenses		339		338
Professional services		717		598
Tax-related liabilities		40		23
Other accrued liabilities		314		337
Total accrued liabilities	$	2,208	$	2,201

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Commitments And Contingencies (Tables)

12 Months Ended

Dec. 31, 2015

Commitments And Contingencies [Abstract]

Summary Of Commitments And Contigencies

		Payments Due by Period
(in thousands)		Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Operating Leases	$	804	$	212	$	292	$	246	$	54
Capital Leases		475		322		143		10		-
Collaboration Costs		125		125		-		-		-
Total accrued liabilities	$	1,404	$	659	$	435	$	256	$	54

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Common Stock (Tables)

12 Months Ended

Dec. 31, 2015

Common Stock [Abstract]

Schedule Of Warrants Outstanding

		Exercise Price	Number of Shares Outstanding under Warrant
Issuance Date	Expiration Date	per Share	December 31, 2015	December 31, 2014
May 1, 2013	April 30, 2015	$             1.88	-	21,000
May 13, 2013	May 13, 2016	$             1.46	413,359	413,359
November 1, 2013	October 31, 2015	$             3.89	-	21,000
May 1, 2014	April 30, 2016	$             4.70	7,000	7,000
December 23, 2014	December 23, 2017	$             2.00	4,166,659	4,166,659
			4,587,018	4,629,018

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Loss Per Share (Tables)

12 Months Ended

Dec. 31, 2015

Loss Per Share [Abstract]

Reconciliation Of Numerators And Denominators Of Basic And Diluted Loss Per Share

	Loss		Shares	Per Share
(In thousands, except per share data)	(Numerator)		(Denominator)	Amount
Year ended December 31, 2014:
Net loss - basic	$	(19,209)	36,082,414	$	(0.53)
Dilutive effect of common stock shares issuable upon exercise of stock options, exercise of warrants, and unvested restricted stock awards		-	-
Net loss - diluted	$	(19,209)	36,082,414	$	(0.53)
Year ended December 31, 2015:
Net loss - basic	$	(19,115)	47,124,261	$	(0.41)
Dilutive effect of common stock shares issuable upon exercise of stock options, exercise of warrants, and unvested restricted stock awards		-	-
Net loss - diluted	$	(19,115)	47,124,261	$	(0.41)

Potential Shares Of Common Stock Excluded From Diluted Loss Per Share Calculation

	Year Ended December 31,
	2015	2014
Stock options	3,317,811	1,711,046
Stock warrants	4,587,018	4,629,018
Potential common shares	7,904,829	6,340,064

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Employee Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2015

Employee Benefit Plans [Abstract]

Activity Related to Shares Available for Grant Under the 2000 Plan and 2010 Plan

	2000 Stock Plan	2010 Stock Option Plan	Total
Shares available at December 31, 2013	-	1,420,441	1,420,441
Options canceled	124,397	945,826	1,070,223
Reduction in shares reserved	(124,397)	-	(124,397)
Options granted	-	(1,512,000)	(1,512,000)
Restricted stock units granted	-	(128,500)	(128,500)
Restricted stock units canceled	-	11,667	11,667
Shares available at December 31, 2014	-	737,434	737,434
Shares added		4,500,000	4,500,000
Options canceled	3,800	69,352	73,152
Reduction in shares reserved	(3,800)	-	(3,800)
Options granted	-	(1,739,500)	(1,739,500)
Restricted stock units granted	-	(195,781)	(195,781)
Shares available at December 31, 2015	-	3,371,505	3,371,505

Stock Option Activity Under 2000 Plan and 2010 Plan

	Number of Shares	Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual  Term
Options outstanding at December 31, 2013	1,447,968	$	3.36	$	780	7.94
Granted	1,512,000		2.58
Exercised	(178,699)		1.34
Canceled	(1,070,223)		3.77
Options outstanding at December 31, 2014	1,711,046	$	2.62	$	178	7.82
Granted	1,739,500		1.99
Exercised	(59,583)		1.62
Canceled	(73,152)		3.29
Options outstanding at December 31, 2015	3,317,811	$	2.29	$	91	8.24
Shares exercisable:
December 31, 2015	1,087,139	$	2.69	$	39	6.50
Shares expected to vest:
December 31, 2015	1,829,151	$	2.09	$	52	9.09

Range of Exercise Prices for Options Outstanding and Exercisable

	Exercise Price				Options Outstanding		Weighted  Average Exercise Price	Weighted Average  Remaining Life in Years	Options Exercisable		Weighted Average Exercise Price
$	0.01	-	$	1.30	30,000	$	1.30	8.95	8,801	$	1.30
	1.31	-		2.12	2,363,000		1.94	8.49	561,101		1.88
	2.13	-		3.09	702,875		2.70	7.85	364,545		2.80
	3.10	-		9.92	204,650		3.48	7.29	135,406		3.54
	9.93	-		28.65	17,286		20.97	0.77	17,286		20.97
$	0.01	-	$	28.65	3,317,811	$	2.29	8.24	1,087,139	$	2.69

Fair Value of Options Vested

(in thousands)		Total Intrinsic Value of Options Exercised		Total Fair Value of Vested Options
Year ended December 31, 2015	$	13	$	1,864
Year ended December 31, 2014	$	55	$	655

Assumptions Used to Calculate Fair Value of Options Granted Under 2010 Plan

	Year Ended December 31,
	2015			2014
Dividend yield		-	%		-	%
Volatility		78	%		80	%
Risk-free interest rate		1.76	%		1.92	%
Expected lives (years)		6.0			6.0
Weighted average fair value	$	1.37		$	1.78

Allocation of Stock-Based Compensation Expense by Functional Area

	Year Ended December 31,
(in thousands)		2015		2014
Cost of Sales	$	40	$	1
Research and development		137		136
Sales and marketing		209		259
General and administrative		825		741
Total	$	1,211	$	1,137

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2015

Income Taxes [Abstract]

Components Of Deferred Tax Assets (Liabilities)

	Year Ended December 31,
(in thousands)	2015		2014
Deferred tax assets:
Net operating losses	$	65,341	$	58,276
Amortization - R&D intangibles		5,919		6,227
Other		3,007		2,936
Total deferred tax assets		74,267		67,439
Valuation allowance		(74,267)		(67,431)
Deferred tax assets	$	-	$	8
Deferred tax liabilities:
Other	$	-	$	(8)
Deferred tax liabilities	$	-	$	(8)
Net deferred tax asset	$	-	$	(0)

Reconciliation Of Statutory Federal Income Tax Rate

	Year Ended December 31,
	2015		2014
Tax at federal statutory rate	34	%	34	%
State tax, net of federal benefit	2		1
Valuation allowance	(36)		(16)
Change in warrant valuation	-		-
Net operating loss and credit reduction due to section 382 limitations	-		-
Permanent items	(1)		(3)
Other	1		(16)
Effective income tax rate	-	%	-	%

Reconciliation Of Change In Unrecognized Tax Benefits

(in thousands)		Federal Tax		State Tax		Total
Balance at December 31, 2013	$	5,040	$	5,024	$	10,064
Increase in tax position during 2014		148		111		259
Decrease due to expirations		-		-		-
Balance at December 31, 2014	$	5,188	$	5,135	$	10,323
Increase in tax position during 2015		147		110		257
Decrease due to expirations		-		-		-
Balance at December 31, 2015	$	5,335	$	5,245	$	10,580

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Basis Of Presentation And Summary Of Significant Accounting And Reporting Policies (Details)						12 Months Ended
	Mar. 22, 2016 USD ($)	Jul. 17, 2015 USD ($) $ / shares shares	Jul. 15, 2015 USD ($) $ / shares shares	Mar. 11, 2015 USD ($)	Dec. 23, 2014 USD ($) $ / shares shares	Dec. 31, 2015 USD ($) customer segment $ / shares shares	Dec. 31, 2014 USD ($) customer $ / shares shares
Organization Consolidation And Summary Of Significant Accounting Policies [Line Items]
Common stock, shares issued | shares		9,602,500	9,602,500			52,113,059	43,115,790
Shares issued to underwriters | shares		1,252,500	1,252,500
Price per share | $ / shares		$ 1.96	$ 1.96			$ 0.001	$ 0.001
Proceeds from sale of common stock, net of issuance costs		$ 17,495,000	$ 17,495,000
Proceeds From Issuance Of Private Placement						$ 17,495,000
Warrants outstanding to purchase shares | shares						4,587,018	4,629,018
Accumulated deficit						$ (370,588,000)	$ (351,473,000)
FDIC maximum insured amount						$ 250,000
Accounts receivable, number of customers | customer						14	1
Licenses Revenue						$ 316,000	$ 454,000
Patent costs						$ 215,000	$ 380,000
Number of reportable segments | segment						1
Quest Diagnostics [Member]
Organization Consolidation And Summary Of Significant Accounting Policies [Line Items]
Licenses Revenue				$ 316,000
Subsequent Event [Member] | 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
Private Placement [Member]
Organization Consolidation And Summary Of Significant Accounting Policies [Line Items]
Common stock, shares issued | shares					6,944,445
Price per share | $ / shares					$ 1.44
Issued a warrant to purchase common stock with an exercise price | $ / shares					$ 0.125
Proceeds From Issuance Of Private Placement					$ 10,288,000
Net proceeds from issuance of private placement					$ 10,288,000
Warrants outstanding to purchase shares | shares						4,166,659
Exercise price of warrants | $ / shares						$ 2.00
Minimum [Member]
Organization Consolidation And Summary Of Significant Accounting Policies [Line Items]
Useful life						3 years
Maximum [Member]
Organization Consolidation And Summary Of Significant Accounting Policies [Line Items]
Useful life						5 years

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Strategic Alliance And Secured Line Of Credit With Quest Diagnostics Incorporated (Details) - USD ($)			12 Months Ended
	Jun. 17, 2015	Mar. 11, 2015	Dec. 31, 2015	Dec. 31, 2014
Line of Credit Facility [Line Items]
Secured line of credit, liability				$ 1,106,000
Repayment of short-term debt			$ 1,069,000
Product			1,861,000	$ 2,067,000
License			316,000	$ 454,000
Gain on extinguishment of debt			37,000
Shares authorized for repurchase	$ 860,595
Total purchase price of shares acquired	$ 1,290,892
Shares acquired, price per share	$ 1.50
Quest Diagnostics [Member]
Line of Credit Facility [Line Items]
Quest Diagnostics provided secured line of credit			10,000,000
Secured line of credit, liability				$ 1,106,000
Repayment of short-term debt		$ 1,069,000
Product			163,000
License			202,000
Gain on extinguishment of debt			37,000
Decrease to other current liabilities			41,000
Accounts receivable from related party			$ 1,000	$ 167,000

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Property And Equipment (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Property, Plant and Equipment [Line Items]
Depreciation expense for property and equipment	$ 291,000	$ 141,000
Accumulated amortization	654,000	452,000
Net book value	1,504,000	508,000
Assets Under Capital Leases [Member]
Property, Plant and Equipment [Line Items]
Accumulated amortization	39,000
Net book value	193,000	$ 0
Trumbull, Connecticut Facility [Member] | Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Construction in progress	289,000
Trumbull, Connecticut Facility [Member] | Information Technology [Member]
Property, Plant and Equipment [Line Items]
Construction in progress	$ 484,000

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Property And Equipment (Components Of Property And Equipment) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Property, Plant and Equipment [Line Items]
Gross property and equipment	$ 2,158	$ 960
Accumulated depreciation and amortization	(654)	(452)
Property and equipment, net	1,504	508
Machinery And Equipment [Member]
Property, Plant and Equipment [Line Items]
Gross property and equipment	841	563
Demonstration Equipment [Member]
Property, Plant and Equipment [Line Items]
Gross property and equipment	39	38
Computer Equipment And Software [Member]
Property, Plant and Equipment [Line Items]
Gross property and equipment	428	291
Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Gross property and equipment	41	$ 68
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Gross property and equipment	36
Construction In Progress [Member]
Property, Plant and Equipment [Line Items]
Gross property and equipment	$ 773

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Accrued Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Accrued Liabilities [Abstract]
Payroll and benefits related expenses	$ 798	$ 905
Collaboration and research agreements expenses	339	338
Professional services	717	598
Tax-related liabilities	40	23
Other accrued liabilities	314	337
Accrued Liabilities, Current, Total	$ 2,208	$ 2,201

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Commitments And Contingencies (Narrative) (Details)		1 Months Ended	12 Months Ended
	Mar. 22, 2016 USD ($)	Apr. 30, 2015 USD ($) item	Dec. 31, 2015 USD ($) item	Dec. 31, 2014 USD ($)
Commitments And Contingencies [Line Items]
Operating leases rental expense			$ 190,000	$ 130,000
Research and development			$ 3,751,000	4,667,000
Number of purchased laboratory instruments | item		2
Initial payment of laboratory equipment		$ 250,000
Monthly payment for acquisition for equipment		$ 7,000
Number of payments for purchase production of assets			36 months
Accumulated amortization			$ 654,000	452,000
Net book value			1,504,000	508,000
Royalty expense			$ 74,000	83,000
Austin, Texas facility [Member]
Commitments And Contingencies [Line Items]
Number of lease agreements | item			3
Annual base rent			$ 131,000
Annual estimated common area charges, taxes and insurance			$ 62,000
Lease expiration date			May 31, 2017
Lease cancellation notice period			90 days
Trumbull, Connecticut Facility [Member]
Commitments And Contingencies [Line Items]
Annual base rent			$ 32,000
Annual estimated common area charges, taxes and insurance			91,000
Leasehold improvements			$ 438,000
Lease term			5 years
Rent abatement period			5 months
Johns Hopkins University School Of Medicine [Member]
Commitments And Contingencies [Line Items]
Research and development			$ 600,000	1,323,000
Percent of royalty paid			4.00%
Minimum royalty payment			$ 57,500
DECD [Member]
Commitments And Contingencies [Line Items]
Debt, maturity term			10 years
DECD [Member] | Subsequent Event [Member]
Commitments And Contingencies [Line Items]
Total borrowing amount	$ 4,000,000
Fixed rate per annum	2.00%
Amount eligible for forgiveness	$ 2,000,000
Initial proceeds from loan	2,000,000
Remaining loan amount	$ 2,000,000
Assets Under Capital Leases [Member]
Commitments And Contingencies [Line Items]
Accumulated amortization			$ 39,000
Net book value			$ 193,000	$ 0

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Commitments And Contingencies (Summary Of Commitments And Contigencies) (Details) $ in Thousands	Dec. 31, 2015 USD ($)
Other Commitments [Line Items]
Total accrued liabilities	$ 1,404
Total accrued liabilities, Less Than 1 Year	659
Total accrued liabilities, 1-3 Years	435
Total accrued liabilities, 3-5 Years	256
Total accrued liabilities, More Than 5 Years	54
Operating Lease [Member]
Other Commitments [Line Items]
Total accrued liabilities	804
Total accrued liabilities, Less Than 1 Year	212
Total accrued liabilities, 1-3 Years	292
Total accrued liabilities, 3-5 Years	246
Total accrued liabilities, More Than 5 Years	54
Capital Leases [Member]
Other Commitments [Line Items]
Total accrued liabilities	475
Total accrued liabilities, Less Than 1 Year	322
Total accrued liabilities, 1-3 Years	143
Total accrued liabilities, 3-5 Years	$ 10
Total accrued liabilities, More Than 5 Years
Collaboration Costs [Member]
Other Commitments [Line Items]
Total accrued liabilities	$ 125
Total accrued liabilities, Less Than 1 Year	$ 125
Total accrued liabilities, 1-3 Years
Total accrued liabilities, 3-5 Years
Total accrued liabilities, More Than 5 Years

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Common Stock (Narrative) (Details) - USD ($)				12 Months Ended
	Jul. 17, 2015	Jul. 15, 2015	Dec. 23, 2014	Dec. 31, 2015	Dec. 31, 2014	Oct. 31, 2014
Common Stock Equity [Line Items]
Common stock, shares issued	9,602,500	9,602,500		52,113,059	43,115,790
Shares issued to underwriters	1,252,500	1,252,500
Price per share	$ 1.96	$ 1.96		$ 0.001	$ 0.001
Proceeds From Issuance Of Private Placement				$ 17,495,000
Warrants outstanding to purchase shares				4,587,018	4,629,018
Common stock value				$ 52,000	$ 43,000
Aggregate proceeds from common stock issued				17,373,000	10,288,000
Net proceeds after deducting offering costs from common stock issued	$ 17,495,000	$ 17,495,000
Common Stock [Member]
Common Stock Equity [Line Items]
Aggregate proceeds from common stock issued				$ 10,000	$ 7,000
Private Placement [Member]
Common Stock Equity [Line Items]
Common stock, shares issued			6,944,445
Price per share			$ 1.44
Issued a warrant to purchase common stock with an exercise price			$ 0.125
Proceeds From Issuance Of Private Placement			$ 10,288,000
Net proceeds from issuance of private placement			$ 10,288,000
Warrants outstanding to purchase shares				4,166,659
Exercise price of warrants				$ 2.00
Fair value of warrants issued				$ 2,970,000
Common stock value				$ 7,311,000
Other Equity Offerings [Member] | Common Stock [Member]
Common Stock Equity [Line Items]
Common stock, shares issued				48,473
Aggregate proceeds from common stock issued				$ 75,000
Net proceeds after deducting offering costs from common stock issued				$ 0
Maximum [Member] | Other Equity Offerings [Member] | Common Stock [Member]
Common Stock Equity [Line Items]
Aggregate offering price of common stock						$ 15,000,000
Commission of gross proceeds from common stock issued						3.00%

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Common Stock (Schedule Of Warrants Outstanding) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Class of Warrant or Right [Line Items]
Number of Shares Outstanding under Warrant	4,587,018	4,629,018
Period 1 [Member]
Class of Warrant or Right [Line Items]
Issuance Date	May 01, 2013
Expiration Date	Apr. 30, 2015
Exercise Price per Share	$ 1.88
Number of Shares Outstanding under Warrant		21,000
Period 2 [Member]
Class of Warrant or Right [Line Items]
Issuance Date	May 13, 2013
Expiration Date	May 13, 2016
Exercise Price per Share	$ 1.46
Number of Shares Outstanding under Warrant	413,359	413,359
Period 3 [Member]
Class of Warrant or Right [Line Items]
Issuance Date	Nov. 01, 2013
Expiration Date	Oct. 31, 2015
Exercise Price per Share	$ 3.89
Number of Shares Outstanding under Warrant		21,000
Period 4 [Member]
Class of Warrant or Right [Line Items]
Issuance Date	May 01, 2014
Expiration Date	Apr. 30, 2016
Exercise Price per Share	$ 4.70
Number of Shares Outstanding under Warrant	7,000	7,000
Period 5 [Member]
Class of Warrant or Right [Line Items]
Issuance Date	Dec. 23, 2014
Expiration Date	Dec. 23, 2017
Exercise Price per Share	$ 2.00
Number of Shares Outstanding under Warrant	4,166,659	4,166,659

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Loss Per Share (Reconciliation Of Numerators And Denominators Of Basic And Diluted Loss Per Share) (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Loss Per Share [Abstract]
Net loss-basic	$ (19,115)	$ (19,209)
Net loss-diluted	$ (19,115)	$ (19,209)
Net loss-basic	47,124,261	36,082,414
Net loss-diluted	47,124,261	36,082,414
Basic Per Share Amount	$ (0.41)	$ (0.53)
Diluted Per Share Amount	$ (0.41)	$ (0.53)

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Loss Per Share (Potential Shares Of Common Stock) (Details) - shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share	7,904,829	6,340,064
Stock Options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share	3,317,811	1,711,046
Warrant
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share	4,587,018	4,629,018

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Employee Benefit Plans (Narrative) (Details) - USD ($)				3 Months Ended	12 Months Ended
	Dec. 01, 2016	Sep. 01, 2016	Jun. 01, 2016	Mar. 29, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options, exercised					59,583	178,699
Stock options, shares of common stock remained outstanding					3,317,811	1,711,046	1,447,968
Total unrecognized compensation cost related to nonvested stock option awards					$ 2,464,000
Weighted average period over which unrecognized cost expected to be recognized					2 years 2 months 27 days
401(k) Plan, percentage for compensation defer					90.00%
401 (k) contributions					$ 0	$ 0
2000 Stock Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options vesting period					4 years
Stock options, expiration period					10 years
Stock options, exercised					0	15,000
Maximum common stock provides for issuance under stock plan					0
2000 Stock Plan | Statutory Stock Options | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock option grant price, percentage of fair market value of common stock					100.00%
2000 Stock Plan | Nonstatutory Stock Options | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock option grant price, percentage of fair market value of common stock					85.00%
2010 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options, expiration period					10 years
Stock options, exercised					59,583	163,490
Maximum common stock provides for issuance under stock plan					8,122,983
Additional shares authorized					4,500,000
2010 Stock Incentive Plan [Member] | Board Of Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted share units granted					195,781	103,500
Fair value of restricted share units					$ 401,000	$ 320,000
Subsequent Event [Member] | 2010 Stock Incentive Plan [Member] | Certain Company Officers And Employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting percentage				25.00%
Stock options granted				1,024,000
Stock options granted, exercise price				$ 1.57
Subsequent Event [Member] | 2010 Stock Incentive Plan [Member] | Certain Company Officers [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options granted				300,000
Stock options granted, exercise price				$ 1.57
Subsequent Event [Member] | 2010 Stock Incentive Plan [Member] | Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted share units granted				226,000
Fair value of restricted share units				$ 354,000
Forecast [Member] | 2010 Stock Incentive Plan [Member] | Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting percentage	25.00%	25.00%	50.00%

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Employee Benefit Plans (Activity Related To Shares Available For Grant) (Details) - shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available at beginning of period	737,434	1,420,441
Additional shares reserved	4,500,000
Options canceled	73,152	1,070,223
Reduction in shares reserved	(3,800)	(124,397)
Options granted	(1,739,500)	(1,512,000)
Restricted stock units granted	(195,781)	(128,500)
Restricted stock units canceled		11,667
Shares available at End of period	3,371,505	737,434
2000 Stock Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options canceled	3,800	124,397
Reduction in shares reserved	(3,800)	(124,397)
2010 Stock Option Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available at beginning of period	737,434	1,420,441
Additional shares reserved	4,500,000
Options canceled	69,352	945,826
Options granted	(1,739,500)	(1,512,000)
Restricted stock units granted	(195,781)	(128,500)
Restricted stock units canceled		11,667
Shares available at End of period	3,371,505	737,434

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Employee Benefit Plans (Summary Of Stock Option Activity) (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Number of Shares
Number of Shares Beginning Balance	1,711,046	1,447,968
Number of Shares Granted	1,739,500	1,512,000
Number of Shares Exercised	(59,583)	(178,699)
Number of Shares Canceled	(73,152)	(1,070,223)
Number of Shares Ending Balance	3,317,811	1,711,046	1,447,968
Number of Shares Shares exercisable	1,087,139
Number of Shares Shares expected to vest	1,829,151
Weighted Average Exercise Price
Weighted Average Exercise Price Beginning Balance	$ 2.62	$ 3.36
Weighted Average Exercise Price Granted	1.99	2.58
Weighted Average Exercise Price Exercised	1.62	1.34
Weighted Average Exercise Price Canceled	3.29	3.77
Weighted Average Exercise Price Ending Balance	2.29	$ 2.62	$ 3.36
Weighted Average Exercise Price Shares exercisable	2.69
Weighted Average Exercise Price Shares expected to vest	$ 2.09
Aggregate Intrinsic Value Beginning Balance	$ 178	$ 780
Aggregate Intrinsic Value Ending Balance	91	$ 178	$ 780
Aggregate Intrinsic Value Shares exercisable	39
Aggregate Intrinsic Value Shares expected to vest	$ 52
Weighted Average Remaining Contractual Term Ending Balance	8 years 2 months 27 days	7 years 9 months 26 days	7 years 11 months 9 days
Weighted Average Remaining Contractual Term Shares exercisable	6 years 6 months
Weighted Average Remaining Contractual Term Shares expected to vest	9 years 1 month 2 days

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Employee Benefit Plans (Stock Options Outstanding And Exercisable) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise Price Lower Range	$ 0.01
Exercise Price Upper Range	$ 28.65
Options Outstanding	3,317,811	1,711,046	1,447,968
Weighted Average Exercise Price	$ 2.29	$ 2.62	$ 3.36
Weighted Average Remaining life	8 years 2 months 27 days
Options Exercisable	1,087,139
Weighted Average Exercise Price	$ 2.69
Range One
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise Price Lower Range	0.01
Exercise Price Upper Range	$ 1.30
Options Outstanding	30,000
Weighted Average Exercise Price	$ 1.30
Weighted Average Remaining life	8 years 11 months 12 days
Options Exercisable	8,801
Weighted Average Exercise Price	$ 1.30
Range Two
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise Price Lower Range	1.31
Exercise Price Upper Range	$ 2.12
Options Outstanding	2,363,000
Weighted Average Exercise Price	$ 1.94
Weighted Average Remaining life	8 years 5 months 27 days
Options Exercisable	561,101
Weighted Average Exercise Price	$ 1.88
Range Three
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise Price Lower Range	2.13
Exercise Price Upper Range	$ 3.09
Options Outstanding	702,875
Weighted Average Exercise Price	$ 2.70
Weighted Average Remaining life	7 years 10 months 6 days
Options Exercisable	364,545
Weighted Average Exercise Price	$ 2.80
Range Four
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise Price Lower Range	3.10
Exercise Price Upper Range	$ 9.92
Options Outstanding	204,650
Weighted Average Exercise Price	$ 3.48
Weighted Average Remaining life	7 years 3 months 15 days
Options Exercisable	135,406
Weighted Average Exercise Price	$ 3.54
Range Five
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise Price Lower Range	9.93
Exercise Price Upper Range	$ 28.65
Options Outstanding	17,286
Weighted Average Exercise Price	$ 20.97
Weighted Average Remaining life	9 months 7 days
Options Exercisable	17,286
Weighted Average Exercise Price	$ 20.97

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Employee Benefit Plans (Fair Value of Options Vested) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Employee Benefit Plans [Abstract]
Total Intrinsic Value of Options Exercised	$ 13	$ 55
Total Fair Value of Vested Options	$ 1,864	$ 655

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Employee Benefit Plans (Assumptions Used to Calculate Fair Value Of Options Granted) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Employee Benefit Plans [Abstract]
Dividend yield
Volatility	78.00%	80.00%
Risk-free interest rate	1.76%	1.92%
Expected lives (years)	6 years	6 years
Weighted average fair value	$ 1.37	$ 1.78

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Employee Benefit Plans (Allocation Of Employee Stock-Based Compensation Expense By Functional Area) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Cost Of Revenue [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 40	$ 1
Research And Development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	137	136
Sales And Marketing [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	209	259
General And Administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	841	775
Employee Stock-based Compensation
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	1,211	1,137
Employee Stock-based Compensation | Cost Of Revenue [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	40	1
Employee Stock-based Compensation | Research And Development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	137	136
Employee Stock-based Compensation | Sales And Marketing [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	209	259
Employee Stock-based Compensation | General And Administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 825	$ 741

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Income Taxes (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Income Taxes [Line Items]
Income tax benefit (expense)
Operating loss, net carryforwards expiration amount	$ 5,000,000
Increase in deferred tax asset	7,000,000
Deferred Tax Assets Valuation Allowance	74,267,000	$ 67,431,000
Gross unrecognized tax benefits	10,580,000	10,323,000	$ 10,064,000
Total Unrecognized income tax benefit, affecting effective tax rate if recognized	10,580,000
Accrued interest and penalties	0	0
Federal Tax [Member]
Income Taxes [Line Items]
Operating loss, net carryforwards	185,000,000
Gross unrecognized tax benefits	5,335,000	5,188,000	5,040,000
State Tax [Member]
Income Taxes [Line Items]
Operating loss, net carryforwards	160,000,000
Gross unrecognized tax benefits	$ 5,245,000	$ 5,135,000	$ 5,024,000

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Income Taxes (Components Of Deferred Tax Assets (Liabilities)) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Deferred tax assets:
Net operating losses	$ 65,341	$ 58,276
Amortization - R&D intangibles	5,919	6,227
Other	3,007	2,936
Total deferred tax assets	74,267	67,439
Valuation allowance	$ (74,267)	(67,431)
Deferred tax assets		8
Deferred tax liabilities:
Other		(8)
Deferred tax liabilities		$ (8)
Net deferred tax asset

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Income Taxes (Reconciliation Of Statutory Federal Income Tax Rate) (Details)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Income Taxes [Abstract]
Tax at federal statutory rate	34.00%	34.00%
State tax, net of federal benefit	2.00%	1.00%
Valuation allowance	(36.00%)	(16.00%)
Permanent items	(1.00%)	(3.00%)
Other	1.00%	(16.00%)

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Income Taxes (Reconciliation Of Change In Unrecognized Tax Benefits) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Income Tax Contingency [Line Items]
Beginning Balance	$ 10,323	$ 10,064
Increase in tax position	257	259
Ending Balance	10,580	10,323
Federal Tax [Member]
Income Tax Contingency [Line Items]
Beginning Balance	5,188	5,040
Increase in tax position	147	148
Ending Balance	5,335	5,188
State Tax [Member]
Income Tax Contingency [Line Items]
Beginning Balance	5,135	5,024
Increase in tax position	110	111
Ending Balance	$ 5,245	$ 5,135

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Related Party Transactions (Details)		9 Months Ended	10 Months Ended	12 Months Ended
	Jan. 18, 2016 USD ($) $ / H	Sep. 30, 2014 USD ($)	Oct. 23, 2014 USD ($) shares	Dec. 31, 2014 USD ($) $ / H	Dec. 31, 2015 USD ($)
Related Party Transaction [Line Items]
Payments to related party		$ 340,000
Quest Diagnostics [Member]
Related Party Transaction [Line Items]
Accounts receivable from related party				$ 167,000	$ 1,000
Director [Member]
Related Party Transaction [Line Items]
Consulting agreement fee per hour | $ / H				375
Consulting service expenses				$ 22,375
2010 Stock Incentive Plan [Member]
Related Party Transaction [Line Items]
Restricted shares awarded | shares			15,000
Fair value of restricted shares awarded			$ 31,000
Subsequent Event [Member] | Director [Member]
Related Party Transaction [Line Items]
Consulting agreement fee per hour | $ / H	375
Consulting service expenses	$ 51,750