Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
SGNL > SEC Filings for SGNL > Form 10-Q on 15-Aug-2016All Recent SEC Filings

Show all filings for SIGNAL GENETICS, INC.

Form 10-Q for SIGNAL GENETICS, INC.


15-Aug-2016

Quarterly Report


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

Introduction

The following discussion and analysis should be read together with our financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See "Cautionary Note Regarding Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (the "SEC") on March 21, 2016.

Overview

We are a commercial stage, molecular genetics diagnostic company focused on providing innovative diagnostic services that help physicians make better-informed decisions concerning the care of their patients suffering from cancer. Our mission is to develop, validate and deliver innovative diagnostic services that enable better patient-care decisions.

We were founded in January 2010 and hold an exclusive license to the intellectual property stemming from the renowned research on multiple myeloma ("MM") performed at UAMS. Our flagship service offering is the MyPRS® test, which is a microarray-based Gene Expression Profiling ("GEP") assay that tests for the presence of specific groups of genes that can predict low or high level risk of early relapse in patients suffering from MM. The information provided by our MyPRS® test aids physicians in selecting the optimal treatment regimen for each patient's unique MM condition.

To our knowledge, we are the only company marketing a GEP test for assessing the status of MM in the United States. The MyPRS® test is protected by a substantial patent portfolio of issued and pending patents.

Our growth strategy includes the following key elements:

• Expanding the U.S. market penetration of our MyPRS® test by increasing the geographic coverage of our commercial organization.

• Broadening the base of health care insurance companies that have approved reimbursements for MyPRS®.

• Expanding the diagnostic indications for MyPRS® to include asymptomatic monoclonal gammopathy ("AMG"), the precursor conditions to MM.

• Pursuing additional collaborations with pharmaceutical companies who focus on developing therapies to treat MM and its precursor disease.

• Expanding our information technology infrastructure to further improve our customer service experience.

• Continuing to leverage our relationship with UAMS and other key academic centers.

• Expanding our test offering with the addition of other molecular tests useful to physicians who care for MM patients.

• Expanding and leveraging our capabilities into additional blood cancer indications.

• Pursuing additional collaborations, mergers and acquisitions, and in-licensing to expand our service offering.

• Continuing to reduce the costs associated with the development, manufacture and interpretation of our proprietary genomic tests and services.

We believe a key challenge to achieving our growth strategy will be our ability to become contracted with additional payors beyond Medicare and Arkansas Blue Cross Blue Shield ("AR-BCBS"). In order to broaden our coverage policy approval to include a number of the major health care insurance providers in the United States, we are currently presenting our clinical validity and utility dossier and health economic model to various non-contracted third-party payors and accountable care organizations to support our request for their reimbursement approval. MyPRS®has been studied extensively and there are more than 30 peer-reviewed scientific publications that describe the validity and utility of the test. MyPRS® is one of the most extensively validated genomic assays available today. Further, the MyPRS®assay has been validated on patient cohorts totaling over 4,500 patients and detailed in 17 peer-reviewed publications. Please visit our website at www.signalgenetics.com in the "Publications" section under the "Physicians" tab for a list of these publications. These publications were used to help create the aforementioned clinical utility dossier that justifies reimbursement approval by the majority of health care payors.

Other challenges to our growth strategy include: (1) if medical oncologists do not adopt the use of MyPRS® to evaluate the risk of developing MM in patients with AMG, our growth strategy could be adversely affected, (2) if other tests that more accurately predict the severity of MM, the risk of progression of AMG to MM or the likelihood of response to therapy, are developed, physicians could stop ordering MyPRS®, adversely affecting our ability to generate revenue, and
(3) if payors, including our currently contracted payors, decide to reduce payment for MyPRS®.

We operate in only one segment and, currently, have no operations outside of the United States.

Sources of Revenues and Expenses

Revenues

We generate revenues primarily from the completion of tests processed through our CAP-accredited and CLIA certified laboratory when test results are delivered to ordering physicians. During the first six months of 2016, we had three major customers, including UAMS. Revenue sourced either from or through UAMS as a percentage of net revenue during the first six months of 2016 and 2015 were 22% and 75%, respectively. Revenue sourced either from or through our other two major customers as a percentage of net revenue during the first six months of 2016 and 2015 were 26% and 0%, and 12% and 5%, respectively.

A significant portion of our revenues consist of payments or reimbursements received from various payors, including Medicare, contracted insurance companies, directly billed customers (UAMS, pharmaceutical companies, reference laboratories and hospitals) and non-contracted insurance companies. We report revenues from contracted payors and directly billed customers based on the contractual rate. Medicare reimburses MyPRS® based on the local coverage determination at approximately $1,900 per test and AR-BCBS reimburses MyPRS® based on the contractual rate of approximately $2,000 per test. Revenues from non-contracted payors are reported based on the amount expected to be collected, which is based on the historical collection experience of each payor or payor group, as appropriate. Our estimates of net revenue are subject to change based on the contractual status and payment policies of third-party payors with whom we deal as well as anticipated changes in the healthcare industry and related legislation. We regularly refine our estimates in order to make our estimated revenue as accurate as possible based on our most recent collection experience with each third-party payor.

Cost of Revenue

Our cost of revenue consists primarily of the cost of materials and supplies, labor, and other costs associated with processing specimens including pathological review, quality control analyses, delivery charges necessary to render an individualized test result, depreciation, amortization and royalty expense. Costs associated with performing tests are recorded as the tests are processed.

Research and Development Expenses

Our research and development expenses primarily include personnel costs, laboratory supplies, reagents, consulting costs associated with developing and validating new testing services and sponsored research agreements with leading academic institutions for clinical trials and other studies to further validate the use of MyPRS®for MM and AMG.

Selling and Marketing Expenses

Our selling and marketing expenses consist primarily of sales commissions and support costs, salaries and related employee benefits, travel, and marketing costs for our commercial, business development, medical affairs and managed care functions.

General and Administrative Expenses

Our general and administrative expenses consist primarily of personnel costs, professional service fees and other costs related to our being a publicly-traded company.

Interest Expense

Interest expense primarily reflects interest on our note payable - related party.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures in the financial statements. Critical accounting policies are those accounting policies that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on financial condition or operating performance. While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies used in the preparation of our financial statements require significant judgments and estimates:

• Revenue Recognition

• Accounts Receivable, Contractual Allowance and Allowance for Doubtful Accounts

• Stock-Based Compensation

• Accounting for Income Taxes

During the six months ended June 30, 2016, other than as discussed below, there were no significant changes in our critical accounting policies and estimates. Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015 for a more complete discussion of our critical accounting policies.

Revenue Recognition

We recognize revenue from testing services in accordance with the Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC"), 605, Revenue Recognition, which requires that four basic criteria be met before revenue can be recognized: (1) persuasive evidence that an arrangement exists;
(2) delivery has occurred and title and the risks and rewards of ownership have been transferred to the client or services have been rendered; (3) the price is fixed or determinable; and (4) collectability is reasonably assured.

Revenues are recorded on an accrual basis when the contractual obligations are completed as tests are processed through our laboratory and test results are delivered to ordering physicians. Revenues are billed to various payors, including Medicare, contracted insurance companies, directly billed customers (UAMS, pharmaceutical companies, reference laboratories and hospitals) and non-contracted insurance companies. Revenues from Medicare, contracted insurance companies and directly billed customers are reported based on the contractual rate. The difference between the amounts billed and the contractual rates from Medicare and contracted insurance companies are recorded as contractual allowances at the same time the revenue is recognized, to arrive at reported net revenue. The contractual rate is based on established agreed upon rates between us and the respective payor. Directly billed customers are invoiced at the contractual rate by us. Revenues from non-contracted insurance companies are reported based on the amount expected to be collected, which is based on the historical collection experience of each payor or payor group, as appropriate, and anticipated effects of changes in the healthcare industry, if any. The difference between the amount billed and the amount estimated to be collected from non-contracted insurance companies is recorded as a contractual allowance at the same time the revenue is recognized, to arrive at reported net revenue. We do not record revenue from individuals for billings until cash is collected; as collectability is not assured at the time services are provided, therefore there are no accounts receivable from self-payors. Gross revenues from individuals have been immaterial to date.

Our estimates of net revenue for non-contracted insurance companies are subject to change based on the contractual status and payment policies of the third-party payors with whom we deal. We regularly refine our estimates in order to make estimated revenue as accurate as possible based on its most recent collection experience with each third-party payor. We regularly review our historical collection experience for non-contracted payors and anticipated changes in the healthcare industry and adjust expected revenues for current and subsequent periods accordingly, including previously recorded revenues related to outstanding accounts receivable for such non-contracted payors.

Accounts Receivable, Contractual Allowances and Allowance for Doubtful Accounts

We record accounts receivable net of contractual allowances and an allowance for doubtful accounts. At June 30, 2016 and December 31, 2015, contractual allowances were $2.7 million and $2.1 million, respectively. We estimate an allowance for doubtful accounts based on the aging of the accounts receivable and the historical collection experience for each of our contracted payors. When the amounts are determined to be uncollectible, they are expensed as bad debt and subsequently charged-off against the allowance. During the second quarters of 2016 and 2015, we recognized $0 and $4,000, respectively, in bad debt expense. During first six months of 2016 and 2015, we recognized $2,000 and $28,000, respectively, in bad debt expense. At June 30, 2016 and December 31, 2015, there were no allowances for doubtful accounts. Uncollectability of accounts receivable for a non-contracted payor is typically a reflection of an estimate in excess of actual collections and is adjusted in the period of collection as a change in estimate resulting in an increase in contractual allowances and, therefore, a reduction in current period net revenue.

The following tables present our gross accounts receivable from customers outstanding by aging category reduced by total contractual allowances to arrive at the net accounts receivable balances at June 30, 2016 and December 31, 2015. Other than our direct bill customers, all of our receivables were pending approval by third-party payors as of the date that the receivables were recorded:

                                                               June 30, 2016
(in thousands)                 0 - 30 Days     31 - 60 Days     61 - 90 Days     Over 90 Days       Total
Medicare                      $       177     $        18      $        22      $         17     $      234
Contracted insurance
companies                              18               -                4                10             32
Direct bill                           163              10                -                 -            173
Non-contracted insurance
companies                             314             317              341             1,991          2,963
Accounts receivable, gross            672             345              367             2,018          3,402
Less: contractual
allowances                           (366 )          (272 )           (299 )          (1,807 )       (2,744 )
Accounts receivable, net      $       306     $        73      $        68      $        211     $      658

                                                             December 31, 2015
(in thousands)                 0 - 30 Days     31 - 60 Days     61 - 90 Days     Over 90 Days       Total
Medicare                      $       116     $        55      $        32      $         16     $      219
Contracted insurance
companies                              13               -                9                16             38
Direct bill                           101              12               24                14            151
Non-contracted insurance
companies                             336             256              215             1,244          2,051
Accounts receivable, gross            566             323              280             1,290          2,459
Less: contractual
allowances                           (347 )          (245 )           (230 )          (1,243 )       (2,065 )
Accounts receivable, net      $       219     $        78      $        50      $         47     $      394

The day sales outstanding ("DSO") at June 30, 2016 has increased to 71 days, compared to 53 days at December 31, 2015, attributable to the growth in net accounts receivable which was influenced by the increase in both test volume and average selling price for billings to non-contracted insurance payors. Since private non-contracted insurance payors are slower to pay, we expect our DSO's to increase as net revenues from these payors increase.

Recently Adopted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The update is effective for fiscal years and the interim periods within those fiscal years beginning after December 15, 2016, with early adoption permitted. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements and forfeitures are applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement is applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement are applied prospectively. We elected to early adopt this guidance effective January 1, 2016. The impact of adoption of this guidance had no effect on our financial position, statements of operations or statements of cash flows.

In May 2015, the FASB issued ASU No. 2015-07 that eliminates the requirement to categorize investments within the fair value hierarchy if their fair value is measured using the net asset value per share practical expedient in the FASB's fair value measurement guidance. The amendments also limit certain disclosures to investments for which the entity has elected to measure at fair value using the net asset value per share practical expedient. The amendments were applied retrospectively by removing from the fair value hierarchy any investments for which fair value is measured using the net asset value per share practical expedient. Adoption of this guidance did not have an impact on the Company's financial position or results of operations.

Recent Accounting Pronouncements

We have reviewed all recently issued standards and have determined that other than as disclosed above and in Note 2 to the financial statements included herein, such standards will not have a material impact on our financial statements or do not otherwise apply to our operations.

Future Accounting Pronouncements

Section 107 of the JOBS Act provides that an emerging growth company, such as our company, can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Although to date, we have not yet taken advantage of this delay, we have elected to avail ourselves of this extended transition period for adopting new or revised accounting standards in the future. Therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. In the future, we may elect to opt out of the extended period for adopting new or revised accounting standards. If we do so, we will be required to disclose such decision, which will be irrevocable.

Results of Operations

Second Quarter of 2016 Compared to the Second Quarter of 2015

Net Revenue

Our net revenue was $874,000 during the second quarter of 2016, an increase of $140,000, or 19%, compared to $734,000 during the second quarter of 2015. Net revenue and tests billed during the second quarters of 2016 and 2015 were as follows:

                                                                                                                        Three Months Ended June 30,
                                                                                        Net Revenue (in 000s)                                                     Tests Billed
                                                                                                         Increase (Decrease)                                                  Increase (Decrease)
                                                                      2016            2015               $                  %              2016            2015               #                  %
Clinical patients at U.S. hospitals and direct billed customers   $       774     $       329     $        445                135 %            481             283              198                 70 %
Research testing services                                                  40             405             (365 )              (90 )%            47             486             (439 )              (90 )%
Pharmaceutical services                                                    60               -               60                100 %             12               -               12                100 %
Total                                                             $       874     $       734     $        140                 19 %            540             769             (229 )              (30 )%

The number of tests we billed for clinical patients at U.S. hospitals and direct billed customers increased 70% during the second quarter of 2016 compared to the same period in 2015 due to an increase in new hospital customers and an increase in tests sourced from existing customers, a direct result of our increased marketing efforts. Net revenue recognized for such tests billed increased 135% during the second quarter of 2016 when compared to the same period in 2015. The increase in net revenue was driven primarily by the increased test volume and an increase in test average selling price estimates used to calculate revenue for billings to non-contracted insurance payors based on our positive collections experience with such payors. Additionally, net favorable changes in estimates of $82,000 were recorded in the second quarter of 2016, related to revenues recorded in prior years. Net revenue of $329,000 in the second quarter of 2015 was reduced by $43,000 of net unfavorable changes in estimates related to revenue recorded in 2014.

Both the net revenue recognized and number of tests reported and billed for UAMS research testing services decreased 90% during the second quarter of 2016 compared to the second quarter of 2015 primarily due to the decrease in funds available at UAMS for such services. As previously reported, we expect continued declining revenue sourced from UAMS testing services.

In our pharmaceutical services business, MyPRS® will be run across multiple clinical trials in connection with the development of novel treatments for patients with multiple myeloma. We recognized net revenue of $60,000 for services rendered during the second quarter of 2016. We are pursuing additional projects for our pharmaceutical services business.

Cost of Revenue

Cost of revenue was $628,000, or 72% of net revenues, during the second quarter of 2016, a decrease of $50,000, or 7%, compared to $678,000, or 92% of net revenues, during the second quarter of 2015. The decrease in cost of revenue is primarily attributable to an $86,000 decrease in laboratory supply costs, a reflection of lower test volumes from UAMS, offset by a $27,000 increase in royalty expense, related to an increase in revenues, and a $9,000 increase in labor related to re- assignment of laboratory personnel from internal research projects.

Research and Development Expenses

Research and development expenses were $334,000 during the second quarter of 2016, an increase of $140,000, or 72%, when compared to $194,000 during the second quarter of 2015. The increase is primarily attributable to $195,000 increase in sponsored research programs related to research to further validate the use of MyPRS®in MM and AMG, offset by a $55,000 decrease in our usage of labor, materials and supplies for internal research projects compared to the second quarter of 2015.

Selling and Marketing Expenses

Selling and marketing expenses were $555,000 during the second quarter of 2016, a decrease of $19,000, or 3%, when compared to $574,000 during the second quarter of 2015. The decrease is primarily attributed to a $51,000 decrease in marketing projects and conference expenses, offset by a $32,000 increase in personnel costs related to establishing our medical affairs function.

General and Administrative Expenses

General and administrative expenses were $1.8 million during the second quarter of 2016, an increase of $63,000, or 4%, when compared to the second quarter of 2015. The increase was primarily attributable to: $44,000 in increased personnel costs related to hiring of accounting, internal billing and IT staff; $72,000 in increased expenses related to investor relations and board of directors compensation; and $21,000 in increased expenses related to facility costs and other administrative costs; offset by a $58,000 decrease in stock-based compensation expense and $16,000 in reduced spending related to professional services.

Interest Expense

Interest expense was $23,000 during the second quarter of 2016, compared to $72,000 during the second quarter of 2015. The decrease was primarily due to interest expense recorded in the second quarter of 2015 related to the increase in the principal amount of an unsecured note payable due to a related party. The increase in the principal amount of the note was deferred and was amortized to interest expense over the initial term of the note to June 30, 2015.

First Six Months of 2016 Compared to the First Six Months of 2015

Net Revenue

Our net revenue was $1.7 million during the first six months of 2016, an increase of $314,000, or 23%, compared to $1.4 million during the first six months of 2015. Net revenue and tests billed during the first six months of 2016 and 2015 were as follows:

                                                                                                                         Six Months Ended June 30,
                                                                                        Net Revenue (in 000s)                                                     Tests Billed
                                                                                                         Increase (Decrease)                                                  Increase (Decrease)
                                                                      2016            2015               $                  %              2016            2015               #                  %
. . .
  Add SGNL to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for SGNL - All Recent SEC Filings
Copyright © 2017 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.