Viridian Therapeutics, Inc. annual report, FY2015

Filing identity and reporting period

Important identity mismatch: The supplied filing is Signal Genetics, Inc.’s Form 10-K for the fiscal year ended December 31, 2015, filed March 21, 2016. It is not a Viridian Therapeutics, Inc. filing; the source provides no Viridian financial or operating information.

Signal Genetics was a U.S. commercial-stage molecular diagnostics company. Its principal product was MyPRS, a gene-expression test used to assess risk and molecular subtype in multiple myeloma patients.

Financial performance and liquidity

Cost of revenue was 97% of 2015 net revenue, versus 78% in 2014. The filing does not report a separate EBITDA measure. Cash increased despite operating cash burn, primarily because 2015 equity offerings generated $13.095 million net cash proceeds.

At December 31, 2015, total liabilities were $2.492 million and stockholders’ equity was $10.410 million. Debt included a $1.105 million unsecured, demand note payable to a related party bearing 8% interest; accrued interest was $73,000. A laboratory-equipment capital lease liability was $88,000. The related-party note had not been called as of March 15, 2016.

Changes versus the prior year

• Revenue declined 41%, mainly because UAMS research-program revenue fell 69%, from $3.114 million to $954,000, as research funding available at UAMS decreased.
• UAMS-sourced revenue fell to 54% of net revenue from 84%; management expected further declines in UAMS research revenue. Other U.S. hospitals and direct-billed customers grew 57%, while pharmaceutical-services revenue rose from $34,000 to $120,000.
• Operating expenses rose to $13.725 million from $11.187 million. Selling and marketing increased to $2.559 million and R&D to $1.002 million, reflecting commercial expansion and research investment.
• Net loss widened to $11.328 million from $7.890 million, and operating cash use increased to $6.898 million from $2.213 million. Interest expense fell to $141,000 from $1.023 million, largely because $27.3 million of related-party debt had converted to equity in 2014.
• Net accounts receivable decreased to $394,000 from $1.088 million; days sales outstanding improved to 53 from 84. However, 2015 included $193,000 of unfavorable revenue estimate adjustments for prior-period non-contracted payor billings.

Outlook, risks, and unusual items

Management forecast continued losses and negative operating cash flows, but expected available cash to fund operations for approximately 12–15 months from the report date. Additional financing would be needed for longer-term plans; availability and terms were uncertain. Management said spending or business plans might have to be reduced if funding could not be obtained.

Growth plans included broader MyPRS adoption and reimbursement, pursuing an additional indication for precursor conditions to multiple myeloma, expanding pharmaceutical collaborations, and adding tests. The company signed service agreements with two pharmaceutical companies in 2015 and reported expanded access through preferred-provider networks, but did not provide formal revenue or earnings guidance.

• Customer concentration: UAMS accounted for 54% of 2015 net revenue, and Moffitt for about 10%. Much of the UAMS relationship was exposed to declining research funding.
• Reimbursement and revenue estimates: coverage remained limited; Medicare reimbursement was about $1,900 per MyPRS test and Arkansas Blue Cross Blue Shield reimbursement about $2,000. Non-contracted payor collections were uncertain, and contractual allowances rose to 56% of gross revenue from 33%.
• Regulation: MyPRS was offered as a laboratory-developed test. Potential FDA oversight changes could require premarket review, additional clinical evidence, expense, or interruption of sales. PAMA’s future effects on Medicare laboratory payments were unclear.
• Listing and financing: Nasdaq notified the company in November 2015 of a minimum-bid-price deficiency; it needed to meet the $1.00 bid-price requirement by May 23, 2016, subject to possible extension. The company had issued substantial equity in 2015, and further financing could dilute shareholders.
• Operational and legal exposure: testing relied on a single laboratory in Little Rock and one supplier for inventory used in testing. The filing reported no current defendant litigation and no material commitments beyond disclosed leases, license, and service arrangements.
• Unusual revenue item: 2015 revenue included $193,000 in unfavorable prior-period non-contracted-payor estimate revisions; the comparable 2014 revision was $380,000. A $100,000 legal-settlement gain was recorded in 2014, not 2015.

Management reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2015. The auditor issued an unqualified opinion on the financial statements; it was not engaged to audit internal controls.

Investor facts to verify

1. Confirm the issuer and filing: this document is Signal Genetics’ 2015 Form 10-K, not Viridian Therapeutics’ filing.
2. Assess cash burn against the stated 12–15-month runway, and determine the company’s subsequent financing needs and available capital.
3. Review whether UAMS research revenue continued to decline and whether growth from hospitals and pharmaceutical services offset concentration risk.
4. Validate payor collections, contractual allowance assumptions, and the sustainability of reported reimbursement and improved receivable days.
5. Check the resolution of the Nasdaq bid-price deficiency and the dilution and capacity implications of equity issuance.
6. Track FDA/LDT and PAMA developments, as well as progress toward broader reimbursement and any new MyPRS indications.