UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x	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

Commission File Number 0-26483

Diadexus, Inc.

(Exact name of Registrant as Specified in its Charter)

Delaware		94-3236309
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

349 Oyster Point Boulevard South San Francisco, California		94080
(Address of principal executive offices)		(Zip Code)

(650) 246-6400

(Registrant’s telephone number, including area code)

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

Common Stock, $0.01 par value per share

(Title of Class)

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

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

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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	¨ (Do not check if a smaller reporting company)	Smaller Reporting Company	x

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

The aggregate market value of the common stock held by non-affiliates of the Registrant on June 30, 2015, based upon the last trade price of the common stock reported on the OTCQB on June 30, 2015, was approximately $19.5 million.* As of March 28, 2016, 4,100,060 shares of the registrant’s common stock, par value $0.01, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Excludes 17,129 shares of Common Stock held by directors, officers and stockholders whose beneficial ownership exceeds 10% of the Registrant’s Common Stock outstanding. The number of shares owned by stockholders whose beneficial ownership exceeds 10% was determined based upon Schedules 13D and 13G, if any, filed with the SEC. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the Registrant, that such person is controlled by or under common control with the Registrant, or that such persons are affiliates for any other purpose.

Special Note Regarding Forward-Looking Statements

This discussion and analysis should be read in conjunction with our audited financial statements and related notes thereto appearing in Item 8 of this Annual Report on Form 10-K and the risk factors described in Part I, Item 1A of this Annual Report on Form 10-K.

This Annual Report includes “forward-looking statements” that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain forward-looking statements can be identified by words such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “could” or “would” or the negative thereof or other comparable terminology. All statements other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any statements of the plans and objectives of management, any statements regarding future operations, any statements regarding future economic conditions or performance and any statement of assumptions underlying any of the foregoing.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. We caution you therefore against relying on any of these forward-looking statements.

Any forward-looking statements included in this Annual Report speak only as of the date hereof. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to update any such forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law.

Table of Contents

PART I
Item 1.	Business	4
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	22
Item 2.	Properties	22
Item 3.	Legal Proceedings	23
Item 4.	Mine Safety Disclosures	23
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stock Holder Matters and Issuer Purchases of Equity Securities	24
Item 6.	Selected Financial Data	24
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 8.	Financial Statements and Supplementary Data	33
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	57
Item 9A.	Controls and Procedures	57
Item 9B.	Other Information	58
PART III
Item 10.	Directors, Executive Officers, and Corporate Governance	59
Item 11.	Executive Compensation	65
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	69
Item 13.	Certain Relationships and Related Transactions, and Director Independence	71
Item 14.	Principal Accountant Fees and Services	72
PART IV
Item 15.	Exhibits and Financial Statement Schedules	73
Index to Financial Statements		73
Index to Exhibits		73
Signatures		74

PART I

Item 1.

Business

Company Overview and Organization

Diadexus is a diagnostics company developing and commercializing products that deliver healthcare providers with important information to assist in the management of their patients throughout the course of cardiac disease. Our capabilities include proprietary manufacturing, assay development, FDA regulatory clearance, and marketing and selling products. We have evolved from a company that serves a concentrated group of customers to one that is building a broad, diversified base of new laboratory customers through the launch of The PLAC^® Test for Lp-PLA₂ Activity (the “PLAC Activity Test”).

Our commercially-available products consist of the only two FDA-cleared tests to measure Lp-PLA₂: The PLAC^® Test ELISA Kit (the “PLAC ELISA Test”) first cleared by the FDA in 2003 and the PLAC Activity Test cleared in December 2014. We pioneered the testing of Lp-PLA₂ (lipoprotein-associated phospholipase A₂), a cardiovascular risk marker that provides new information, over and above traditional risk factors measured in a lipid panel, and has over a decade of peer-reviewed literature including The New England Journal of Medicine from March 30, 2014. We sell our diagnostic products to laboratories and hospitals and promote these products to the laboratories’ sales representatives as well as directly to healthcare providers to support our laboratory partners’ efforts. Physicians order tests for their patients from these laboratories and use the results to aid in assessing patient risk for coronary heart disease and heart attacks.

Our company was initially incorporated in November 1995. In July 2010, we completed a reverse merger with former diaDexus, Inc., which was the successor to a company initially formed as a joint venture between SmithKlineBeecham Corporation (now GlaxoSmithKline LLC (“GSK”)) and Incyte Pharmaceuticals, Inc. Upon formation in September 1997, SmithKlineBeecham Corporation granted former diaDexus, Inc. an exclusive license to certain diagnostic intellectual property, including exclusive rights to develop diagnostic assays for Lp-PLA₂. In November 2010, in connection with the reverse merger, we changed our name to Diadexus, Inc. Beginning in 2014, we assembled a new team of leaders, each with extensive experience in their respective functions, including appointing an entirely new commercial leadership team in the third quarter 2015 that brings deep sales and marketing expertise within the diagnostic market.

On September 4, 2015, we entered into a License and Supply Agreement (the “License and Supply Agreement”) with OriGene Technologies, Inc., (“OriGene”) and Wuxi OriGene Biotechnology Co., Ltd., (“WOBC”) (OriGene and WOBC are referred to herein collectively as “Licensee”) and a Securities Purchase Agreement with OriGene. Under the License and Supply Agreement, we granted Licensee an exclusive license and supply agreement granting Licensee rights to develop and commercialize LP-PLA2 mass assay products in certain Asian countries (the “Territory”) with a license term of ten years, and supply commitments dependent on certain conditions. In connection with the License and Supply Agreement, we and OriGene entered into a separate securities purchase agreement (the “Stock Purchase Agreement”) on September 4, 2015. Pursuant to the Stock Purchase Agreement, on September 4, 2015, when the closing market price of our stock was $3.01, we issued 264,681 shares of our common stock, at a per share purchase price of approximately $3.82 for a total of $1.0 million.

Effective June 30, 2015, we consummated a 1-for-15 reverse split of all issued and outstanding shares of common stock and concurrently reduced the authorized number of common stock to 50,000,000 shares. All share and per share amounts have been adjusted to reflect this reverse split.

The “Company,” “Diadexus,” “we,” “us,” and “our” refers to the business of Diadexus, Inc. (f/k/a VaxGen, Inc.) after the reverse merger between Vaxgen, Inc. and former diaDexus, Inc. on July 28, 2010.

Our Products and Product Candidates

The following table summarizes the indications and regulatory status of our major products:

Products	Indications	Regulatory Status
PLAC^® Test ELISA Kit	An aid in predicting risk for coronary heart disease (CHD) and ischemic stroke associated with atherosclerosis	Clearance from FDA first obtained for marketing in the U.S. in July 2003 for CHD and in June 2005 for ischemic stroke. CE mark in Europe. Commercialized in the U.S.

PLAC^® Test for Lp-PLA₂ Activity	Used in conjunction with clinical evaluation and patient risk assessment as an aid in predicting risk of CHD in patients with no prior history of cardiovascular events	Clearance from FDA obtained for marketing in the U.S. in December 2014.
proADM	Prognosis of heart failure	In development on the ELISA platform and in feasibility studies for alternate platforms for broader commercial potential.
proET-1	Aid in predication of heart failure, specific indication to be determined	n/a
proANP	Aid in predication of heart failure, specific indication to be determined	n/a

The PLAC ELISA Test is available nationally through leading clinical reference laboratories and advanced cardiovascular specialty laboratories. The new PLAC Activity Test has already been validated on a wide range of clinical chemistry analyzers and this new product launch opens up a new base of laboratory partners for us, including hospital systems, regional reference laboratories, clinics and physician office laboratories. Each test is covered under the established reimbursement code for Lp-PLA₂ tests, and both are covered by Medicare.

Validation and Clinical Utility

Our PLAC Tests are blood tests that measure Lp-PLA₂ concentration or activity levels, respectively, delivering valuable information to healthcare providers for the prediction of cardiac disease risk. We pioneered the testing of Lp-PLA₂ (lipoprotein-associated phospholipase A₂), a marker of vascular-specific inflammation that provides new information, over and above traditional risk factors. The clinical validation study data used for FDA clearance of the PLAC Activity Test was based on subjects enrolled in the REGARDS study, and showed that high PLAC Activity versus low PLAC Activity had a greater hazard ratio for predicting subsequent coronary heart disease events than nearly all other established cardiovascular risk factors, including LDL and HDL.

LDL alone has proven not to be a reliable predictor of CHD, with 50% of cardiovascular events occurring in patients with recommended lipid levels.^1 2 The PLAC Tests are designed to uncover this hidden risk and recommended for individuals with two or more risk factors for coronary heart disease³. In a consensus recommendation from the June 2008 supplement of the American Journal of Cardiology, leading cardiologists and neurologists proposed that the PLAC ELISA Test should be used as an adjunct to traditional risk factor assessment to identify moderate and high-risk individuals who may actually be at an increased risk for heart attack or stroke. If a PLAC Test is elevated, healthcare providers can recommend^{4, 5}:

Lifestyle changes, including smoking cessation programs, diabetes and hypertension management

Lowering the LDL threshold for considering therapeutic intervention (i.e. individuals with high PLAC would have LDL threshold lowered from 130 to 100 mg/dl in considering therapeutic intervention)

Intensification of lipid-monitoring treatment

Annual testing of Lp-PLA₂

Sources:

¹ Sachdeva A, et al. Am Heart J. 2009.

² Bowman TS, et al. Stroke. 2003.

³ Davidson M, et al. American Journal of Cardiology, 2008.

⁴ Davidson, MH, et al. J Clin Lipidol. 2011.

⁵ Davidson, MH, et al. Am J Cardiology. 2008.

PLAC^® Test ELISA Kit

The PLAC ELISA Test is the only blood test cleared by the FDA to aid in assessing risk for both coronary heart disease and ischemic stroke associated with atherosclerosis. This test was first cleared by the FDA in 2003 and measures the concentration of circulating Lp-PLA₂ in the blood using an enzyme-linked-immunosorbent assay (“ELISA”).

Our PLAC ELISA Test uses microplate technologies to measure levels of Lp-PLA₂. The infrastructure for performing microplate tests typically exists at all specialty reference laboratories capable of running an ELISA and advanced cardiovascular specialty laboratories, which must be certified by the United States (“U.S.”) Department of Health and Human Services (“DHHS”) for high-complexity diagnostics under the Clinical Laboratory Improvement Amendments (“CLIA”). Smaller hospitals and clinics can order the PLAC ELISA Test for their patients from those institutions that are able to perform microplate tests and offer the PLAC ELISA Test. Patients can have their blood drawn at a local laboratory and shipped to the more advanced institutions for analysis.

PLAC^® Test for Lp-PLA₂ Activity

The PLAC Activity Test, cleared by the FDA in December 2014, is to be used in conjunction with clinical evaluation and patient risk assessment as an aid in predicting risk of CHD in patients with no prior history of cardiovascular events, a population which we believe represents approximately 75% of patients at risk for coronary heart disease. This test is an enzyme assay for the quantitative determination of Lp-PLA₂ activity levels in human plasma and serum on automated clinical chemistry analyzers. This clinical chemistry technology is easier to use by a new base of laboratory partners.

In Europe, the PLAC Activity Test CE marking (obtained by self-certification in January 2012) is for use in conjunction with clinical evaluation and patient risk assessment as an indicator of atherosclerotic cardiovascular disease.

Validation and Clinical Utility

An analysis based on the REGARDS study, a U.S.-based National Institutes of Health (“NIH”)-funded longitudinal study, using a cohort of approximately 4,600 individuals with no prior history of cardiovascular events, demonstrated that elevated Lp-PLA₂ Activity levels are associated with a significant increase for risk of CHD in patients with no history of cardiovascular events. Key findings from this validation study used for FDA clearance include:

The absolute risk of CHD events was higher in the high PLAC group, as measured by a level greater than or equal to the 225 nmol/min/mL cut-point

The absolute risk of CHD events of two groups separated early and was consistently different after one year of follow up and all subsequent pre-specified time points

Results were statistically significant within each gender and race subgroup analyzed independently

Background on Lp-PLA₂ Levels and Risk for Heart Attack and Stroke

Over 16 million Americans are at moderate risk for a first atherosclerotic cardiovascular disease event over the next ten years¹. CHD is a narrowing of the arteries that supply blood and oxygen to the heart, most frequently as a result of atherosclerosis, which occurs when fatty material or other substances build up to form plaque on the walls of the arteries. A heart attack can result if the blood to a section of the heart becomes blocked or reduced as a result of the atherosclerosis. Similarly, ischemic stroke, the most common form of stroke, is often associated with atherosclerosis, when a blood clot forms at the buildup of fatty material or other substances in vessels in the brain, or when a blood clot from another part of the body dislodges and then blocks a narrower vessel in the brain. In either case, if blood flow is not restored quickly, that portion of the heart or brain will become damaged from lack of oxygen and the cells begin to die.

Lp-PLA₂ is an inflammatory enzyme implicated in the formation of rupture-prone plaque that can lead to the formation of blood clots and trigger a heart attack or stroke. Lp-PLA₂ is a cardiovascular risk marker, and potentially a risk factor, as substantiated in a number of prospective studies:

A 2004 peer-reviewed article authored by Dr. Christie Ballantyne and colleagues analyzed samples from the Atherosclerosis Risk in Communities (“ARIC”) study, which followed 12,819 apparently healthy middle-aged men and women for six to eight years. Results from this study indicated that individuals with LDL-cholesterol (commonly referred to as “bad cholesterol”) levels less than 130 mg/dL and levels of Lp-PLA₂ in the highest third of the population are twice as likely to have a coronary event than individuals with LDL-cholesterol levels less than 130 mg/dL and Lp-PLA₂ levels in the lowest third of the population.

A 2008 peer-reviewed publication by Dr. Philip Gorelick and colleagues based on the analysis of samples from the ARIC study concluded that individuals with systolic blood pressure in the highest third of the population and levels of Lp-PLA₂ above the mean were 6.8 times more likely to have a stroke than someone with a systolic blood pressure in the lowest third of the population and levels of Lp-PLA₂ below the mean.

A meta-analysis by The Lp-PLA₂ Collaboration published in The Lancet in 2010, reviewed 32 prospective studies evaluating Lp-PLA₂ and risk of coronary disease, stroke and mortality, and showed continuous associations of Lp-PLA₂ activity or concentration levels with risk of CHD similar in magnitude to that with non-HDL cholesterol and systolic blood pressure.

In March 2012, a peer-reviewed article authored by Dr. Paul Ridker and colleagues based on the analysis of samples from the Justification for the Use of Statins in Primary Prevention: An Intervention Trial Evaluating Rosuvastatin (JUPITER) study concluded that among primary prevention patients allocated to the placebo, higher base levels of Lp-PLA₂ activity were statistically significantly associated with increased cardiovascular risk. The same study showed that among patients allocated to rosuvastatin (Crestor^®), Lp-PLA₂levels were not independently associated with residual cardiovascular risk. Treated patients with Lp-PLA₂activity in the higher second, third and fourth quartiles had a somewhat greater relative risk reduction than did those with levels in the first quartile, although this trend did not meet statistical significance.

In October 2013, Dr. Harvey D. White and colleagues published a first positive outcomes study based on the analysis of archived samples of the Long-term Intervention with Pravastatin in Ischaemic Disease (“LIPID”) study. This sub-study showed that reduction in Lp-PLA₂activity is a significant predictor of reduction in CHD and changes in Lp-PLA₂ activity may account for a substantial proportion of pravastatin (Pravachol^®) effect in reducing CHD events over an average of 6.1 years of treatment. This analysis broke new ground by looking for the first time at the relationship between changes in Lp-PLA₂levels and its correlation to reduced CHD events.

In August 2014, Dr. Lars Wallentin and colleagues reported at the European Society of Cardiology meeting the results of the Stabilization of Atherosclerotic Plaque by Initiation of Darapladib Therapy (STABILITY) trial. This study included a population with prior myocardial infarction (> 1 month), prior coronary revascularization and multi-vessel coronary artery disease treated with darapladib or placebo. The study concluded that Lp-PLA2 was a consistent and independent risk marker for cardiovascular events on both arms of the study, even against a background of an optimally treated high-risk population.

In November 2015, the REGARDS Study investigators presented additional data from the PLAC Activity clinical validation study at the American Heart Association Scientific Sessions in November 2015. These data demonstrated that Lp-PLA2 activity was associated with increased CHD among blacks and whites, men and women, and in younger and older individuals. More importantly, the increased risk was observed across patients with lower predicted 10-year risks of less than 5% or between 5 to 20% based on the Framingham Risk Function, a risk score recommended by society guidelines. These data suggest that the PLAC Activity result provides independent prognosticative information that identifies patients at heightened CHD risk that may help practitioners make therapeutic decisions.

Source:

¹ 2013 ACC/AHA Guideline on the Assessment of Cardiovascular Risk

Clinical Guidelines for Lp-PLA₂ Testing

Testing for Lp-PLA₂ is recommended in the following four guidelines:

American College of Cardiology Foundation/America Heart Association guideline for assessment of cardiovascular risk in asymptomatic adults (2010);

Guidelines for the primary prevention of stroke: A guideline for healthcare professionals from the American Heart Association/American Stroke Association (2011);

European guidelines on cardiovascular disease prevention in clinical practice (2012). Lp-PLA2 testing is recommended as a vascular-specific inflammation biomarker; and

American Association of Clinical Endocrinologists’ guidelines for management of dyslipidemia and prevention of atherosclerosis (2012). The American Association of Clinical Endocrinologists’ guidelines recommend assessing markers of inflammation in patients where further stratification of risk is necessary. C-Reactive Protein (“hs-CRP”) and Lp-PLA₂ provide useful additional information in these instances and appear to be synergistic in predicting risk of CHD and stroke. Measurement of Lp-PLA₂, which in some studies has demonstrated more specificity than hs-CRP, is recommended when it is necessary to further stratify a patient’s CHD risk, especially in the presence of systemic hs-CRP elevations.

Pipeline

In 2014, we expanded our pipeline of proprietary biomarkers through a licensing agreement with B.R.A.H.M.S. GmbH (“BRAHMS”). The new biomarkers in our pipeline are proADM, proET-1 and proANP, and each one has the potential to give distinct, additive information for healthcare providers over currently available markers for the treatment of heart failure.

As cardiac disease progresses, some patients suffer heart failure. Serial testing and routine monitoring with additional heart failure biomarkers may allow healthcare providers to manage patients in both acute and chronic settings, predicting and potentially avoiding further acute episodes and costly hospitalizations.

proADM

Our leading heart failure biomarker candidate, proADM (midregional pro adrenomedullin), entered development on the ELISA platform, which is the fastest and established path to FDA regulatory clearance for novel heart failure biomarkers.

The proADM biomarker has an extensive body of published clinical evidence supporting this biomarker’s utility as it provides additive information to healthcare providers above and beyond what BNP (B-type natriuretic peptide) and NT-proBNP (N-terminal pro B-type natriuretic peptide) provide for prognostic purposes . In the largest acute heart failure biomarker study to date¹, proADM showed the best net improvement in predicting 30-day mortality for patients. In another study², serial, repeat testing using proADM added further predictive value in managing acute heart failure patients.

Sources:

¹ Multinational Observational Cohort on Acute Heart Failure (MOCA), Lassus, Intl J Cardiology, 2013

² Biomarkers in Acute Heart Failure (BACH), Maisel, JACC, 2011

Service Business for Pharmaceutical Companies

We believe that our portfolio of advanced cardiac biomarkers offers pharmaceutical companies additional information for the clinical development of novel therapeutics. We have a history of executing large-scale clinical development services agreements, most recently with GSK under a $5.0 million agreement for services we provided during 2014. We are looking to partner with pharmaceutical companies that are developing therapies for indications where cardiovascular risk information would provide valuable insights. This information can be used by pharmaceutical companies in targeting the appropriate patient population and understanding the potential long-term side effects for their therapeutics. Our biomarkers have demonstrated clinical relevance across the spectrum of the course of cardiac disease and we are in advanced discussions with potential pharmaceutical partners who are conducting large, late-stage clinical studies in patients with cardiac disease. We aim to offer these partners Lp-PLA2 testing through its FDA-cleared PLAC® products.

Marketing and Distribution

The Market Opportunity

Half of all heart attacks and strokes occurs in people with recommended LDL levels, suggesting that cholesterol testing as part of a lipid panel is not enough to predict risk^{1, 2}. Over 16 million Americans are at moderate risk for a first atherosclerotic cardiovascular disease event over the next ten years³.

As cardiac disease progresses, some patients develop heart failure, which impacts nearly 6 million Americans and is the leading cause of hospitalization among individuals over 65 years of age³. Monitoring heart failure biomarkers over time may provide complementary information for healthcare providers managing these patients in a chronic setting, to avoid costly acute hospitalization episodes and further disease progression.

In 2008, a consensus panel of investigators recommended how to use Lp-PLA₂ (measured by the PLAC ELISA Test) along with guideline-endorsed CHD risk assessment to better stratify individuals who might be at greater CHD risk than suggested by traditional risk factors and who therefore might benefit from more aggressive management strategies. The consensus panel endorsed the use of Lp-PLA₂ for the assessment of CHD events and stroke risk in intermediate- or moderate-risk populations, and specifically recommended testing in the following patients:

any patient with two or more major CHD risk factors;

any patient 65 years of age or older with one additional risk factor, given that risk for CHD events and strokes increase with age;

smokers;

individuals with an elevated fasting glucose; and

patients with diagnostic criteria for metabolic syndrome who are generally at moderate risk (it has been shown that elevated Lp-PLA₂ further increases CHD risk in these patients).

The panel also recommended Lp-PLA₂ testing for patients with known CHD or a CHD risk factor, such as diabetes or ischemic stroke. Since the publication of these guidelines, Lp-PLA₂ measurement has been recommended in the American Heart Association guidelines issued in 2010 and in the American Stroke Association guidelines issued in 2011.

In 2011, members of the National Lipid Association Biomarkers Expert Panel recommended that Lp-PLA₂ testing may be considered in intermediate-risk patients, as well as certain greater-risk subgroups, such as those with CHD or a CHD risk factor, patients with a family history of premature CHD, and patients with recent CHD events, to identify patients who might benefit from more intensive lipid therapy. In 2012, The American Association of Clinical Endocrinologists issued guidelines for the management of dyslipidemia and the prevention of atherosclerosis which included the following specific statements on Lp-PLA₂:

Lp-PLA₂ has been identified as a strong and independent predictor of cardiovascular disease events and stroke in patients with and without clinically evident coronary artery disease.

Measurement of Lp-PLA₂, in some studies, has demonstrated more specificity than high sensitivity hs-CRP when it is necessary to further stratify a patient’s cardiovascular disease risk, especially with elevated hs-CRP in the presence of other causes of inflammation hs-CRP is a non-specific marker of general inflammation).

Significantly elevated Lp-LPA₂ in combination with significantly elevated hs-CRP constitutes very high cardiovascular disease risk in individuals with low or moderately elevated LDL cholesterol.

Sources:

¹ Sachdeva A, et al. Am Heart J. 2009.

² Bowman TS, et al. Stroke. 2003.

³ 2013 ACC/AHA Guideline on the Assessment of Cardiovascular Risk

Distribution

In the U.S., we market and sell both of our PLAC Tests to national and regional clinical reference laboratories and hospitals. Before the FDA-clearance of the PLAC Activity Test, our customer base for the PLAC ELISA Test was concentrated on national and CHD specialty laboratories. With the launch of the PLAC Activity Test, we are contracting with and driving demand from a broad and diversified channel of new laboratory customers including hospital systems, regional reference laboratories, clinics and physician office laboratories. As we contract with and implement new customers, our new sales team is educating physicians on the PLAC Activity Test’s clinical utility and value from Lp-PLA₂ testing as an independent market to predict the risk of cardiac disease. Our fastest growing laboratories in the past year were specialty laboratories capable of running an ELISA or Activity test, and our customer concentration was highest in the cardiovascular specialty laboratories, which represented the substantial majority of the demand for the test. Our tests are ordered by physicians who obtain test results from clinical reference laboratories. For both tests, but primarily focused on PLAC Activity, we are utilizing a multi-faceted, education-based strategy and a suite of materials to provide laboratory customers and physicians with information on the benefits of using PLAC testing for patient risk assessment with medical education based upon the clinical data included in the 510(k) regulatory submission. We have a new online educational web portal offering healthcare providers a suite of educational materials on our PLAC Tests, including clinical data, clinicians’ perspectives, and a bi-directional interface with Diadexus’ Medical Affairs Department.

Our top five U.S. laboratory partners for the fiscal year ended December 31, 2015 accounted for 70% of our revenue compared to 64% for the fiscal year ended December 31, 2014. To diversify our customer concentration, we have added several new laboratory partners including hospital systems, regional reference laboratories, clinics and physician office laboratories capable of running our tests. Our primary focus is on commercializing our PLAC Tests in the U.S., in particular, in expanding our revenue across a broader base of laboratories. Sales in ex-U.S. territories, primarily in Europe through distributors, represented 1.4% and 3.1% for 2014 and 2015, respectively, and we believe that our resources are better committed to our U.S. efforts.

Customers

In all territories, our sales and marketing efforts typically target healthcare providers who are delivering primary care to their patients, predominantly primary care physicians. These physicians are generally aware that half of all heart attacks occur in individuals with recommended levels of LDL-cholesterol and use diagnostic products, like the PLAC Tests, to help uncover the hidden risks of CHD.

Manufacturing and Sources of Supply

We currently depend on two third-party manufacturers to assemble the PLAC ELISA Test. We manufacture certain raw materials in-house that are used by these manufacturers in the production of the PLAC ELISA Test. We manufacture the PLAC Activity Test on site in South San Francisco, California. We also depend on other key vendors and suppliers of materials, some of which are sole source or for whom an alternative could be difficult to find.

Intellectual Property and Licenses

We actively seek patent protection in the U.S. and other jurisdictions to protect technology, inventions, and improvements to inventions with commercial importance or strategic value to our business.

As of December 31, 2015, we own or have a license to 15 patents and 12 pending patent applications worldwide that relate to Lp-PLA₂with patent expirations ranging from 2016 to 2034, if all claims are issued.

We have exclusive licenses from SmithKlineBeecham Corp. (now GlaxoSmithKline) and a co-exclusive license from ICOS Corporation (“ICOS”) (acquired by Eli Lilly and Company) to practice and commercialize technology covered by several issued and pending U.S. patents and their foreign counterparts. The licenses from GlaxoSmithKline and ICOS include exclusive rights to develop diagnostic assays for Lp-PLA₂. Some of these licensed patents covering composition of matter and cardiovascular diagnostic claims have expiration dates that range from 2015 to 2016.

We intend to seek further intellectual property protection on Lp-PLA₂ technologies, both for new indications and for use in combination with other markers.

Under the BRAHMS license, we have license rights to a family of patents and patent applications relating to proADM, proET-1, and proANP. These cover 21 patent families, including 6 issued U.S. patents and 15 pending applications in the U.S. and their foreign counterparts. The licensed intellectual properties cover the assays, methods of use, and specific disease indications relating to the markers, with patent expiries ranging from 2024 through 2029, if all claims are issued.

Prior to the 2010 merger between VaxGen, Inc. (“Vaxgen”) and former diaDexus, VaxGen sold its anthrax vaccine program and licensed its Human Immunodeficiency Virus (“HIV”) vaccine program to third parties. We retain rights to milestone and royalty payments under these license and purchase agreements; however we do not anticipate that we will derive nor ultimately receive any significant revenue from these third parties that obtained rights to VaxGen’s anthrax and HIV programs.

Competition

Current Competition

We face competition from a number of life sciences companies in the discovery, development, and commercialization of novel diagnostic products for cardiovascular disease. Competing companies include, but are not limited to, large public companies with significantly greater resources, such as Roche, Abbott Laboratories, Siemens, Quest Diagnostics and Alere. Their products may compete indirectly with our current products by offering alternative tests for the same clinical need, and in the future they may compete directly against our product offerings.

We are also aware that research may be underway at various government-financed entities worldwide, as well as at numerous academic institutions, to identify potential diagnostic markers and therapies for cardiovascular disease. Products developed from discoveries made by these entities and institutions may compete with our future product offerings.

The PLAC assays for Lp-PLA₂ are optimized using proprietary protocols to manufacture and purify proteins used exclusively in the portfolio. We believe these protocols, along with the use of a highly characterized, recombinant protein, make it difficult for a competing company to commercialize an Lp-PLA₂ test.

Future Competition

It may be possible for existing customer laboratories to commercialize a diagnostic test service after our patents covering composition of matter of our PLAC Tests expire. These laboratories could develop a laboratory developed test (LDT) and could show that they measure the same analyte as our PLAC Tests. However, demonstrating analytical equivalence will be difficult since these laboratories do not have access to our proprietary monoclonal antibodies, recombinant protein, reagent composition and assay expertise. They may require access to archived clinical sample cohorts, which we believe will be difficult to obtain to show clinical utility. In addition, laboratory developed tests can only be run in the laboratory in which they were developed. We believe that the FDA

clearance for our PLAC ELISA Test and PLAC Activity Test, which gives us the ability to sell to all laboratories, and being first-to-market could provide a distinct competitive advantage over future LDT competitors for Lp-PLA₂ testing.

Research and Development

We incurred approximately $4.3 million and $6.3 million of research and development expenses during the years ended December 31, 2015 and 2014, respectively, which represented 19% of our total operating expenses for both years. In 2014, we analyzed archival samples from a clinical cohort for clinical validation of the PLAC Activity Test and we continued to work on extending the shelf life of the PLAC ELISA Test. In 2015, we began feasibility studies for ELISA assays for each of our three biomarkers for heart failure for research use only purposes for pharmaceutical partners and to support our planned 510(k) submission to the U.S. FDA.

Government Regulations and Regulatory Progress

Our PLAC Tests are subject to regulation by the FDA under its authority to regulate medical devices. In the U.S., medical devices are classified into one of three classes on the basis of the controls deemed by the FDA to be necessary to reasonably ensure their safety and effectiveness. Class I devices are subject to general controls, including labeling, premarket notification and adherence to the FDA’s Quality Systems Regulation (“QSR”), which covers device-specific good manufacturing practices. Class II devices are subject to general controls and special controls, including performance standards and post-market surveillance. Class III devices are subject to premarket approval and most of the previously identified requirements. Most in vitro diagnostic devices are regulated as Class I or Class II devices, although certain diagnostic tests are classified as Class III devices. Our PLAC Tests are classified as class II devices.

We are required to comply with the FDA’s Good Manufacturing Practice requirements contained in its QSR. We are also subject to the FDA’s Medical Device Reporting regulations, which require us to report to the FDA any incident in which one of our products may have caused or contributed to a death or serious injury or malfunctioned in a way that could cause death or serious injury. Failure to comply with the applicable U.S. medical device regulatory requirements could result in, among other things, warning letters, fines, injunctions, civil penalties, repairs, replacements, refunds, recalls or seizures of products, total or partial suspension of production, the FDA’s refusal to grant future premarket clearances or approvals, withdrawals or suspensions of current product applications, and criminal prosecution, any one or more of which could have a material adverse effect on Diadexus.

We are also subject to the laws that govern the manufacture and distribution of medical devices in the countries in which we manufacture or sell products. The member states of the EU have adopted the European Medical Device Directives, which regulate the manufacture and distribution of medical devices in all EU member countries. These regulations require us to obtain CE marking for diagnostic tests, including our PLAC Tests, prior to marketing them in any EU member state. In December 2009, we received authorization to apply the CE marking to our PLAC ELISA Test. In September 2011, we were awarded a Certificate of Registration of Quality System to I.A. EN ISO 13485:20003 (“ISO certification”) for “Design, manufacture and distribution of in vitro diagnostic reagents for the determination and evaluation of cardiovascular biomarkers” by the National Standards Authority of Ireland. In January 2012, the Technical File for the PLAC Activity Test was submitted for CE marking with a European authorized representative, mdi Europa. CE marking was obtained by self-certification in January 2012. Both ISO certification and CE marking are requirements for our PLAC Activity Test to be marketed and sold in Europe.

We are also subject to various laws and regulations relating to safe working conditions, laboratory and manufacturing practices, transfers of value to physicians and teaching hospitals, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents used in connection with our research. Compliance with these laws and regulations relating to the protection of the environment has not had a material effect on our capital expenditures or competitive position. However, the extent of governmental regulation that might result from any legislative or administrative action cannot be accurately predicted.

In June 2011, we submitted a premarket notification to the FDA seeking clearance under section 510(k) of the Food, Drug and Cosmetic Act (“FDCA”) to market our PLAC Activity Test. In October 2011, we elected to withdraw the application following discussions with the FDA. We continued to have discussions with the FDA regarding a new application for the PLAC Activity Test with data from archival blood samples of a large clinical trial. In September 2013, we had a pre-submission meeting with the FDA, as a result of which we advanced our clinical program to support the submission of the PLAC Activity Test to the FDA. In December 2014, we received 510(k) FDA clearance for the commercialization of the PLAC Activity Test.

Between July and October 2014, the FDA released 3 drafts Guidance Documents.-Framework for Regulatory Oversight of Laboratory Developed Tests (LDTs), Benefit-Risk Factors to Consider When Determining Substantial Equivalence in Premarket Notifications [510(k)] with Different Technological Characteristics, and The 510(k) Program: Evaluating Substantial Equivalence in Premarket Notifications. While none of these three drafts have been finalized, we believe they are an indication of the future direction of FDA enforcement and are reviewing them to determine the potential financial impact, if any, on our business.

Reimbursement

Our largest customers are currently cardiovascular specialty laboratories in the U.S. Payment for testing to these customers is largely based on third-party payer reimbursement, whereby the laboratory that performs the test will submit an invoice to the patient’s insurance provider or to the patient if he is not covered by an insurance program. Each diagnostic procedure (and in some instances, specific technologies) is assigned a current procedural terminology (“CPT”) code by the American Medical Association. Each CPT code is then assigned a reimbursement level by the Centers for Medicare and Medicaid Services (“CMS”), formerly the U.S. Health Care Financing Administration. Third party commercial insurance payers also typically establish a specific fee to be paid for each code submitted. Third party payer reimbursement policies are generally determined with reference to the reimbursement for CPT codes for Medicare patients, which themselves are determined on a national basis by CMS. To the extent that third-party insurers cover our PLAC Test, customers running our test are reimbursed, provided that the clinician’s order contains covered diagnostic codes. The PLAC test is billed using the Lp-PLA₂ CPT code as established by the American Medical Association. Many payers will only cover a single PLAC test on a single date of service. Thus, if a patient received both a PLAC Elisa and a PLAC Activity test on the same date of service, only one of those tests is likely to be reimbursed. We anticipate that there will be decreases in the reimbursement price from CMS in future years, particularly after the full implementation of the PAMA law, as defined and discussed below. As a result of this decrease, we may experience pressure on our average selling price to our U.S. customer laboratories that run our PLAC Tests.

In April 2014, the Protecting Access to Medicare Act of 2014 (PAMA) added the most extensive reform of the Medicare Clinical Laboratory Fee Schedule (CLFS) since it was established in 1984. Section 216 of PAMA created a new Section 1834A of the Social Security Act, which contains many of the CLFS reforms. On September 25, 2015, CMS released a proposed rule for the Medicare Clinical Diagnostic Laboratory Tests Payment System, which lays out the regulations and processes for the implementation of PAMA. Per the proposed rule, starting January 1, 2017, most rates on the CLFS will be derived from the private payer rates for laboratory services. Under the proposed rule, regardless of payment rates indicated by commercial payer data provided to CMS, the maximum amount an individual payment for a clinical laboratory diagnostic test can be reduced is 10% for payments effective January 1, 2017. CMS has not yet released a final rule. As such, it is not clear how these changes in rates will impact us, but reduced rates could adversely impact our future revenues.

Employees

As of December 31, 2015, we had a total of 38 full-time employees. None of our employees are subject to a collective bargaining agreement and we believe that our relations with our employees are good.

Liquidity

We will require additional funds to uplist our Common Stock from the OTC Bulletin Board to NASDAQ and to broadly commercialize our products and develop new products. Our ability to fund our operations and to conduct the required development and commercialization activities related to any new product candidates will be significantly limited if we are unable to obtain the necessary capital. We expect to seek to raise funds through equity or debt offerings, bank facilities, or other sources of capital. Additional funding may not be available when needed or on terms acceptable to us and we may need to implement additional cost cutting actions. The consent of Oxford Finance LLC (“Oxford”), the firm from which we have a loan agreement with, will likely be required for additional debt financings. Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. We cannot assure you that we will be able to raise any such additional funding.

Our recurring losses from operations and negative cash flows from operations raise substantial doubt regarding our ability to continue as a going concern and as a result, our independent registered public accounting firm has expressed in its auditors’ report on our financial statements included as part of this Annual Report a “going concern” opinion.

In August 2014, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Oxford to borrow up to $15 million, the entire amount of which was borrowed at a fixed interest rate of 6.95% per annum. In accordance with the Loan Agreement, the Company began making principal repayments in the fourth quarter 2015. The Loan Agreement contains a number of customary representations and warranties and customary covenants, including covenants regarding delivery of financial statements, maintenance of inventory, payment of taxes, maintenance of insurance, dispositions of property, business combinations or acquisitions, incurrence of additional indebtedness and transactions with affiliates. If the Company breaches any of these covenants or it is unable to make a required payment of principal or interest, or it experiences a material adverse change to its business, it could result in a default under

the Loan and Security Agreement and the amount of the loan balance, plus accrued and unpaid interest, and final payment, and the prepayment fee, and other obligations due the lender would be come immediately payable.

Available Information

For more information about us, please visit our website at http://www.diadexus.com and our PLAC Tests website at http://www.plactest.com. You may also obtain a free copy of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports on the day the reports or amendments are filed with or furnished to the SEC by visiting the SEC’s website located at www.sec.gov, or our website at http://www.diadexus.com. In addition, any stockholder who wishes to obtain a printed copy of any of these documents should write to: Investor Relations, Diadexus, 349 Oyster Point Boulevard, South San Francisco, CA 94080. The information found on, or otherwise accessible through, our website or our PLAC Tests website is not incorporated information and does not form a part of this Annual Report on Form 10-K.

You may also read and copy any document we file at the SEC’s public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 for further information on the public reference room.

Item 1A.

Risk Factors

You should carefully consider and evaluate all of the information included and incorporated by reference in this Annual Report, including the risk factors listed below. Any of these risks, as well as other risks and uncertainties that we have not identified, could materially and adversely affect our business, results of operations and financial condition, which in turn could materially and adversely affect the trading price of shares of our common stock. Additional risks not currently known or currently material to us may also harm our business. Bear these risk factors in mind when you read forward-looking statements contained in this Annual Report and the documents incorporated by reference in this Annual Report. These statements relate to our expectations about future events and time periods. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “intends,” “plans,” “believes,” “anticipates,” “expects,” “estimates,” “predicts,” “potential,” “continue” or “opportunity”, or statements that describe our future plans, regulatory status, strategies, intentions, expectations, objectives, goals and prospects. Forward-looking statements involve risks and uncertainties, and future events and circumstances could differ significantly from those anticipated in the forward-looking statements.

Risks Relating to Our Business Operations

Our sales of our PLAC ELISA products are characterized by a high degree of customer concentration. The loss of one or more of these customers or a decline in revenue from one or more of our key customers could have a material adverse effect on our business, financial condition, and results of operations.

Sales to a limited number of customers account for a significant portion of our revenue and accounts receivable. Our top five customers accounted for 67% and 25% of our accounts receivable as of December 31, 2015 and December 31, 2014, respectively, and 70% and 64% of our total revenues for the twelve months ended December 31, 2015 and 2014, respectively. Our dependence on, and the identity of, our key customers may vary from period to period as a result of competition among our customers, and changes in individual customers’ purchases of our products. Our former largest customer, Health Diagnostics Laboratory Inc. (“HDL”), filed for bankruptcy in June 2015, and as the HDL bankruptcy process continues we are unable to predict whether we can collect our outstanding accounts receivable for their prior purchases. Moreover, we are unable to predict whether post-bankruptcy orders will continue with the sale of the majority of HDL assets to True Health Diagnostics, LLC, and if continuing, the timing and purchase levels. Additionally, Atherotech, another of our top five customers in 2015 and 2014, declared Chapter 7 bankruptcy in March 2016. Atherotech’s filing of bankruptcy has no impact on our 2015 revenue or receivables. We are in the process of creating an additional distribution channel for our products through the hospitals, clinics and physician office laboratories for PLAC Activity, but in the near term we expect to continue to have revenues concentrated with a number of large laboratory customers. The loss of, material reduction in sales volume to, or significant adverse change in our relationship with any of our key customers could have a material adverse effect on our revenue in any period and may result in significant annual and quarterly revenue variations.

We have engaged in limited sales and marketing activities for our PLAC Activity product.

PLAC Activity may never gain significant acceptance in the marketplace and therefore never generate substantial revenue or profits. As is the case with all novel biomarkers, we must penetrate the market and generate demand with physician education and awareness programs. Publication in peer review journals of results from outcome studies using our products will be an important consideration in the adoption by physicians. Our ability to successfully commercialize PLAC Activity and other diagnostic products and services will depend on many factors, including:

driving adoption and revenue growth through clinical messaging; and

executing on our commercial strategy of creating a broad and diversified distribution channel of new laboratory customers for this product, including hospital system, regional reference laboratories, clinics and physician office laboratories.

In addition, the timing and uptake from contracting to orders and revenue is highly unpredictable and we may be unable to successfully predict growth in revenues or profits, if any, from PLAC Activity and any new products. These and other factors may present obstacles to commercial acceptance of our products, and we may need to devote substantial time and money to surmount these obstacles, and the result might not be successful.

We rely on two manufacturers to supply materials for our PLAC ELISA Test and a limited number of vendors and suppliers to obtain materials for our PLAC Activity Test in the manufacture of our products. If these manufacturers are unable to deliver our products or these vendors and suppliers are unable to deliver our materials in a timely manner, or at all, we may be unable to meet demand, which would have a material adverse effect on our business.

We have qualified two third-party manufacturers for our PLAC ELISA Test, and we intend to order regularly from both of these manufacturers in the future. We rely on our third-party manufacturers to maintain their manufacturing facility in compliance with FDA and other federal, state and/or local regulations including health, safety and environmental standards. If they fail to maintain compliance with FDA or other critical regulations, they could be ordered to curtail operations, which would have a material adverse impact on our business. In addition, increases in the prices we pay our manufacturer, or lapses in quality, such as failure to meet our specifications or the requirements of the Quality System Regulations (“QSR”) and other regulatory requirements, could materially adversely affect our business. Any manufacturing defect or error discovered after our products have been produced and distributed could result in significant consequences, including costly recall procedures and damage to our reputation. Our ability to replace the existing manufacturers may be difficult, because the number of potential manufacturers is limited.

We also currently depend on certain key vendors and suppliers of materials that are essential for the manufacture of our products. Any interruption in the supply of materials, or the inability to obtain materials from alternate sources in a timely manner, could impair our ability to supply our products and to meet the demands of our customers, which would have a material adverse effect on our business.

We manufacture PLAC Activity Test on-site in South San Francisco, California and we could experience supplier, process, quality control and shipping problems.

We have been manufacturing PLAC Activity Test in-house since January 2012. We are dependent on the expertise of our personnel for ensuring the production and quality of the PLAC Activity Test. We could observe performance deviations that have not been apparent during development, including performance and stability of PLAC Activity. The discovery of such performance deviations or of any manufacturing problems may adversely affect our sales in the U.S. and other countries.

If third-party payers do not reimburse our customers for the use of our clinical diagnostic products or if they reduce reimbursement levels, our ability to sell our products could be harmed.

We sell our products primarily through distributors and to laboratory customers, substantially all of which receive reimbursement for the health care services they provide to their patients from third-party payers, such as Medicare, Medicaid and other government programs, private insurance plans and managed care programs. Both the PLAC ELISA and PLAC Activity Tests are covered by Medicare. Third-party payers are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement for medical products and services. Accordingly, third-party payers are increasingly challenging the prices charged for diagnostic tests. Most of these third-party payers may deny coverage and reimbursement if they determine that a product was not medically necessary or not used in accordance with cost-effective treatment methods, or was used for an unapproved indication.

In the U.S., third-party payers generally require billing codes on claims for reimbursement that describe the services provided. For laboratory services, the American Medical Association (“AMA”) establishes most of the billing codes using Current Procedural Terminology (“CPT”) codes. Each third-party payer generally develops payment amounts and coverage policies for their beneficiaries or members that ties to the CPT code established for the laboratory test and, therefore, coverage and reimbursement may differ by payer even if the same billing code is reported for claims filing purposes. Currently, the tests performed by our assays are described by

a specific CPT code for Lp-PLA₂. If our customers are not reimbursed for our products, they may reduce or discontinue purchases of our products, which would cause our revenues to decline. Lower-than-expected, or decreases in, reimbursement amounts for tests performed may negatively impact our ability to price our products successfully.

On April 1, 2014 the Protecting Access to Medicare Act of 2014 (PAMA) was signed into law. It includes the most extensive reform of the Medicare Clinical Fee Schedule (CLFS) since it was established in 1984. Section 216 of PAMA creates a new Section 1834A of the Social Security Act which contains many of the CLFS reforms. Starting on January 1, 2017, most rates on the CLFS will be derived from private payer rates for laboratory services. It is not clear how these changes in rates will impact us, but reduced rates could materially impact our future revenues. On September 25, 2015, Centers for Medicare & Medicaid Services, or CMS, released a proposed rule for the Medicare Clinical Diagnostic Laboratory Tests Payment System, which lays out the regulations and processes for the implementation of the PAMA law. As expected, the CMS has proposed to begin the establishment of payment rates for clinical laboratory tests based on the currently available payment rates from commercial payers, effective January 1, 2017. Per the PAMA law and the proposed rule, regardless of the payment rates indicated by the commercial payer data provided to the CMS, the maximum amount an individual payment for a clinical laboratory diagnostic test can be reduced is 10% for payments effective January 2017. It is not clear how these changes in rates will impact us, but reduced rates could materially impact our future revenues.

Our business, in particular the growth of our business, is dependent on our ability to successfully develop and commercialize novel diagnostic products and services based on biomarkers.

As an example, in March 2014, we entered into an exclusive licensing and supply agreement with BRAHMS to develop and commercialize three independent biomarkers to aid in risk prediction and prognosis for heart failure. These new biomarker product opportunities represent our future product pipeline. In the event we fail to meet certain diligence requirements under the license, our exclusive right in the U.S. for these products may be lost, which would have an adverse effect on our product pipeline and sales.

The requirements of being a public company have required and will continue to require significant resources, increase our costs and occupy our management, and we may be unable to comply with these requirements in a timely or cost-effective manner.

As a company with public reporting responsibilities, we have incurred and will continue to incur significant legal, accounting, and other expenses related to, among other things:

preparing, filing and distributing periodic and current reports under the Exchange Act for a larger operating business and complying with other Exchange Act requirements applicable to public companies;

maintaining and updating internal policies, such as those relating to insider trading and disclosure controls and procedures;

involving and retaining to a greater degree outside counsel and accountants in the above activities; and

establishing and maintaining an investor relations function, including the provision of certain information on our website.

If we are successful in our efforts to uplist to a national securities exchange or if we cease to be a smaller reporting company under applicable SEC regulations, we will also be subject to additional reporting and compliance requirements. Compliance with these rules and regulations has and will cause us to incur significant legal and financial compliance costs. In addition, we are required to implement and maintain effective internal control over financial reporting and disclosure. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting. Our testing may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. We have incurred and expect to continue to incur significant expense and devote substantial management effort toward ensuring compliance with these requirements. Moreover, if we are not able to comply with these requirements in a timely manner, or if we identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our common stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would entail expenditure of additional financial and management resources.

Natural disasters, including earthquakes, may damage our facilities.

Our corporate, research and manufacturing facilities are located in the San Francisco Bay Area of California, in close proximity to known earthquake fault zones. As a result, these facilities and any clinical samples kept in these facilities are susceptible to damage from earthquakes and other natural disasters, such as fires, floods and similar events. Although we maintain general business insurance against fires and some general business interruptions, there can be no assurance that the scope or amount of coverage will be adequate in any particular case. Insurance specifically for earthquake risks is not available on commercially reasonable terms.

Failure in our information technology and storage systems could significantly disrupt the operation of our business.

Our ability to execute our business plan depends, in part, on the continued and uninterrupted performance of our information technology (“IT”) systems. IT systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our IT systems, sustained or repeated system failures that interrupt our ability to generate and maintain data could adversely affect our ability to operate our business.

Our future success depends on our ability to effectively recruit and retain our senior management and other key employees and attract, retain and motivate qualified personnel.

We depend on the efforts and abilities of our senior management, our research and development staff and a number of other key management, sales, support, technical and administrative services personnel. In particular, we rely on the experience of our senior management, who have specific knowledge of our business and industry that is difficult to replace. If we are unable to attract and retain highly-qualified senior management, our business may be adversely affected. Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution.

Competition for experienced, high-quality personnel exists, particularly in the San Francisco Bay Area, and we cannot assure you that we can continue to recruit and retain such personnel. Our failure to hire, train and retain qualified personnel would impair our ability to develop new products and manage our business effectively.

Significant disruptions of information technology systems or breaches of data security could adversely affect our business.

Our business is increasingly dependent on critical, complex and interdependent information technology systems, including Internet‑based systems, to support business processes as well as internal and external communications. The size and complexity of our computer systems make them potentially vulnerable to breakdown, malicious intrusion and computer viruses that may result in the impairment of key business processes.

In addition, our systems are potentially vulnerable to data security breaches—whether by employees or others—that may expose sensitive data to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property, or could lead to the public exposure of personally identifiable information (including sensitive personal information) of our employees, collaborators, and others. A data security breach or privacy violation that leads to disclosure or modification of or prevents access to patient information, including personally identifiable information or protected health information, could harm our reputation, compel us to comply with federal and/or state breach notification laws, subject us to mandatory corrective action, require us to verify the correctness of database contents and otherwise subject us to liability under laws and regulations that protect personal data, resulting in increased costs or loss of revenue. If we are unable to prevent such data security breaches or privacy violations or implement satisfactory remedial measures, our operations could be disrupted, and we may suffer loss of reputation, financial loss and other regulatory penalties because of lost or misappropriated information. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. Moreover, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property. While we have implemented security measures to protect our data security and information technology systems, such measures may not prevent such events.

Such disruptions and breaches of security could have a material adverse effect on our business, financial condition and results of operations.

Risks Relating to Government Regulations

We are subject to extensive regulation by the FDA and other regulatory agencies, and failure to comply with such regulation could have a material adverse effect on our business, financial condition, and results of operations.

Our business and our medical device products, including our PLAC Test, are subject to extensive regulation by the FDA and other federal, state, and foreign regulatory agencies. These laws and regulations govern many aspects of our products and operations, and the products and operations of our suppliers and distributors, including premarket clearance and approval, design, development and manufacturing, labeling, packaging, safety and adverse event reporting, recalls, storage, advertising, promotion, sales and record keeping. Failure to comply with these laws and regulations could result in, among other things, warning letters, civil or criminal penalties, injunctions, delays in clearance or approval of our products, withdrawal of cleared products, recalls, and other operating restrictions, all of which could cause us to incur significant expenses.

Before we can market or sell a new product or a significant modification to an existing product in the U.S., we must obtain either clearance under Section 510(k) of the FDCA, or approval of a pre-market approval application (“PMA”), from the FDA, unless an exemption applies. In the 510(k) clearance process, the applicant must demonstrate to the FDA’s satisfaction that a proposed device is “substantially equivalent” to a device legally on the market, known as a “predicate” device, with respect to intended use, technology and safety and effectiveness, in order to obtain clearance from the FDA to market the proposed device. Clinical data is sometimes required to support substantial equivalence. The PMA pathway requires an applicant to demonstrate the safety and effectiveness of the device based, in part, on extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturing, and labeling data. The FDA can delay, limit, or deny clearance or approval of a device for many reasons, including:

We may not be able to demonstrate to the FDA’s satisfaction that our products are substantially equivalent to lawful predicate devices or safe and effective for their intended uses;

The data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required;

The manufacturing process or facilities we use may not meet applicable requirements; and

Changes in FDA clearance or approval policies or the adoption of new regulations may require additional data.

Further, any modification we make to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design, or manufacture, would require us to seek a new 510(k) clearance or, possibly, approval of a PMA. The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review any manufacturer’s decision. The FDA may not agree with our decisions regarding whether new clearances or approvals are necessary for changes to 510(k) cleared devices. If the FDA disagrees with our determination and requires us to submit new 510(k) notifications or PMAs for modifications to our previously cleared products for which we have concluded that new clearances or approvals are unnecessary, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties.

Even when a product reaches the market, the subsequent discovery of previously unknown problems, such as material deficiencies or defects in design, labeling, or manufacture, or a potential unacceptable risk to health, with a product may result in restrictions on the product, including recall or withdrawal of the product from the market, and/or a requirement to submit a new 510(k) submission or PMA for the product in order to support continued marketing.

We and our suppliers are subject to inspections by the FDA and other regulatory agencies, and deficiencies identified during these audits could have a material adverse effect on our results of operations.

Once regulatory clearance or approval has been granted, the product and its manufacturer are subject to continual review by the FDA and other regulatory authorities. For example, we are subject to routine inspection by the FDA and certain state agencies for compliance with the QSR, which establishes the good manufacturing practices for medical devices, and Medical Device Reporting regulations, which require us to report to the FDA any incident in which one of our products may have caused or contributed to a death or serious injury or malfunctioned in a way that could cause death or serious injury. Although we believe that we have adequate processes in place to ensure compliance with these and other post-market requirements, the FDA or other regulatory bodies could disagree and take enforcement action, including issuing warning letters, untitled letters, fines, injunctions, consent decrees or civil penalties, or imposing operating restrictions or partial suspension or total shutdown of manufacturing, selling or exporting our products, among other sanctions, if it concludes that we are out of compliance with applicable regulations or if it concludes that our products pose an unacceptable risk to health or are otherwise deficient in design, labeling or manufacture. Further, the ability of our suppliers to supply critical components or materials and of our distributors to sell our products could be adversely affected if their operations are determined to be out of compliance. The FDA and other regulatory bodies could also require us to recall products if we fail to comply with applicable regulations. Such actions by the FDA and other regulatory bodies would adversely affect our revenues and results of operations.

We are and will be subject to new regulations, which could have a material adverse effect on our results of operations.

Many national, regional, and local laws and regulations, including the healthcare reform legislation, have not been fully implemented by the regulatory authorities or adjudicated by the courts, and these provisions are open to a variety of interpretations. In the ordinary course of business, we must frequently make judgments with respect to compliance with applicable laws and regulations. If regulators subsequently disagree with the manner in which we have sought to comply with these regulations, we could be subjected to various sanctions, including substantial civil and criminal penalties, as well as product recall, seizure or injunction with respect to the sale of our products. Such sanctions could severely impair our reputation within the industry and any limitation on our ability to manufacture and market our products could have a material adverse effect on our business. In addition, in January 2011, the FDA announced twenty-five action items it intends to take in reforming the 510(k) premarket review program. The FDA issued its recommendations and proposed action items in response to concerns from both within and outside of the FDA about the 510(k) program. The FDA is in

the process of issuing guidance on the specific modifications or clarifications that the FDA intends to make to its guidance, policies, and regulations pertaining to the review and regulation of devices such as ours which seek and receive marketing clearance through the 510(k) process. The FDA’s announced action items signal that additional regulatory requirements are likely. The FDA intends to issue a variety of draft guidance and regulations which, when fully implemented, could impose additional regulatory requirements upon us, which could delay our ability to obtain new clearances, increase the cost of compliance, or restrict our ability to maintain our current 510(k) clearances.

Healthcare reform and its restrictions on coverage and reimbursement may adversely affect our business.

Legislation both proposed and passed has had an impact on reimbursement levels for diagnostic services, including laboratory tests. For instance, in March 2010, President Barack Obama signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “PPACA”), which makes a number of substantial changes to the way health care is financed by both governmental and private insurers. Among other things, the PPACA mandates a reduction in payments for clinical laboratory services paid under the Medicare Clinical Laboratory Fee Schedule of 1.75% for the years 2011 through 2015. A productivity adjustment also is made to the fee schedule payment amount. In addition, on February 22, 2012, President Obama signed the Middle Class Tax Relief and Job Creation Act of 2012, which, among other things, mandated an additional change in Medicare reimbursement for clinical laboratory services. This legislation requires a rebasing of the Medicare clinical laboratory fee schedule to effect a 2% reduction in payment rates otherwise determined for 2013, which in turn will serve as a base for 2014 and subsequent years. Further, with respect to the PPACA changes, the legislation establishes an Independent Payment Advisory Board (“IPAB”) to reduce the per capita rate of growth in Medicare spending. The IPAB has broad discretion to propose policies, which may have a negative impact on payment rates for services, including clinical laboratory services, beginning in 2016, and for hospital services beginning in 2020. PPACA also provided for an excise tax on medical devices and required to disclose all transfers of values to physicians and physician teaching institutions under the6 sunshine provisions of the PPACA. On December 18, 2015, President Obama signed into law the "Protecting Americans from Tax Hikes Act of 2015." The Act imposes a two-year moratorium on the medical device excise tax effective for sales made after December 31, 2015.

The full impact on our business of the PPACA and other government spending limitations resulting from broader cutbacks in government spending or reimbursement is uncertain. Levels of reimbursement may decrease in the future, and future legislation, regulation or reimbursement policies of third-party payers may adversely affect the demand for and price levels of our products.

PAMA included a substantial new payment system for clinical laboratory tests under the Clinical Laboratory Fee Schedule. Under PAMA, Medicare payment rates for tests will be equal to the volume-weighted median of the private payer payment rates for a test. The payment rates calculated under PAMA will be effective starting January 1, 2017, and will be reviewed every three years, based on private payer payment rates and volumes for their tests. On September 25, 2015, CMS released a proposed rule for the Medicare Clinical Diagnostic Laboratory Tests Payment System, which lays out the regulations and processes for the implementation of the PAMA law. As expected, CMS has proposed to begin the establishment of payment rates for clinical laboratory tests based on the currently available payment rates from commercial payers, effective January 1, 2017. Per the PAMA law and the proposed rule, regardless of the payment rates indicated by the commercial payer data provided to CMS, the maximum amount an individual payment for a clinical laboratory diagnostic test can be reduced is 10% for payments effective January 2017. We believe that, starting in 2017 and over time, our customers could see decreased reimbursement from Medicare for running our PLAC Tests which may impact the price at which we sell them our kits and negatively impact our revenue growth.

We are subject to healthcare laws, regulation and enforcement, and our failure to comply with those laws could have a material adverse effect on our results of operations and financial condition.

We are also subject to healthcare fraud and abuse regulation and enforcement by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

the federal Health Insurance Portability and Accountability Act of 1996 as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information;

the federal healthcare programs’ Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;

federal false claims laws that prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent;

federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; and

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers.

If our operations are found to be in violation of any of the laws described above or any other governmental laws or regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs, or imprisonment, any of which could adversely affect our ability to operate our business and our financial results.

Risks Relating to Liquidity and Additional Capital

Our current debt financing contains restrictions that limit our flexibility in operating our business, and our lender may accelerate repayment of amounts outstanding under certain circumstances.

In September 2014, we entered into a Loan and Security Agreement with Oxford (the “Loan and Security Agreement”). The Loan and Security Agreement contains a number of affirmative and restrictive covenants. These covenants limit our ability to, among other things:

Dispose of property;

Merge, consolidate or acquire another entity;

Incur additional indebtedness;

Enter into transactions with affiliates; and

Pay dividends or make other distributions or payments on our capital stock.

If we breach any of these covenants, are unable to make a required payment of principal or interest, or experience a material adverse change to our business, it could result in an event of default under the Loan and Security Agreement. Upon the occurrence of an event of default under the Loan and Security Agreement, Oxford could elect to declare all amounts outstanding to be immediately due and payable. If we were unable to repay the amounts due under the Loan and Security Agreement, Oxford could proceed against the collateral granted to it to secure such indebtedness. We have pledged substantially all of our assets, other than our intellectual property, as collateral under the loan. Any event of default under the Loan and Security Agreement could significantly jeopardize our business and ability to continue as a going concern.

We will need to raise additional capital to support our operations in the future.

We will require additional funds to uplist our Common Stock from the OTC Bulletin Board to NASDAQ and to broadly commercialize our products and to develop new products. Our ability to fund our operations and to conduct the required development activities related to any new product candidates will be significantly limited if we are unable to obtain the necessary capital. We expect to seek to raise funds through equity or debt offerings, bank facilities, or other sources of capital. Additional funding may not be available when needed or on terms acceptable to us. The consent of Oxford will likely be required for additional debt or other financings. Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. We cannot assure you that we will be able to raise any such additional funding, and any such failure may negatively impact our business and operations.

Our future capital needs are uncertain and our independent registered public accounting firm has expressed in its report on our 2015 audited financial statements a substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital or obtain loans from financial institutions and our operations could be curtailed if we are unable to obtain the required additional funding when needed. We may not be able to do so when necessary, and/or the terms of any financings may not be advantageous to us.

Our financial statements for the year ended December 31, 2015 included in Item 8 of this Annual Report on Form 10-K have been prepared assuming we will continue to operate as a going concern. However, due to our ongoing operating losses, negative cash flows from operations, and our accumulated deficit, there is substantial doubt about our ability to continue as a going concern. Because we continue to experience net operating losses, our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities or obtaining loans from financial institutions. Our continued net operating losses increase the difficulty in completing such sales or securing alternative sources of funding, and there can be no assurances that we will be able to obtain such funding on favorable terms or at all. If we are unable to obtain sufficient financing from the sale of our securities or from alternative sources, we may be required

to reduce, defer or discontinue certain of our research and development activities and operating activities or we may not be able to continue as a going concern. As a result, our independent registered public accounting firm has expressed in its auditors’ report on the financial statements included in Item 8 of this Annual Report a substantial doubt regarding our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of the uncertainty regarding our ability to continue as a going concern. If we cannot continue as a going concern, our stockholders may lose their entire investment in the common stock. Future reports from our independent registered public accounting firm may also contain statements expressing doubt about our ability to continue as a going concern.

We have a history of losses, we expect to incur losses for at least the next few years, and we may never achieve profitability.

We have incurred substantial net losses since our inception. Our accumulated deficit was $215.5 million at December 31, 2015. For the twelve months ended December 31, 2015 and 2014, we incurred net losses of $7.2 million and $8.5 million, respectively. We expect to continue to incur net losses for at least the next few years based on our current plans to engage in new development activities to broaden our product pipeline. If we are unable to achieve profitability, or if the time required to achieve profitability is longer than we anticipate, we may not be able to continue our business.

Moreover, we are solely dependent on our two PLAC Tests for revenues. We expect that the PLAC Tests will account for a substantial portion of our revenue for the foreseeable future. We do not know if both of our PLAC Tests will be accepted broadly by the market over the long-term and it is possible that the demand for the product may decline over time, and any quarter or other period of profitability may not be sustainable without continued growth in sales of both of our products. Even with our 510(k) FDA clearance, we may never be able to successfully commercialize PLAC Activity in the U.S.. Any decline in demand or failure of our PLAC Tests to penetrate current or new markets significantly could have a material adverse effect on our business, financial condition, and results of operations. Moreover, the sale of PLAC Tests may not continue to stabilize, and any reduction in demand from one or more of our major customers may have a significant impact on our ability to achieve and maintain profitability.

Risks Relating to Intellectual Property

If the combination of patents, trade secrets, trademarks, and contractual provisions that we rely on to protect our intellectual property proves inadequate, our ability to successfully commercialize our products will be harmed and we may never be able to operate our business profitably.

Our success depends, in large part, on our ability to protect proprietary discoveries, technology, brands, creative works, and diagnostic tests under the patent and other intellectual property laws of the U.S. and other countries, so that we can seek to prevent others from unlawfully using our proprietary inventions and information. We hold issued patents in the U.S. covering PLAC ELISA and PLAC Activity. Certain patents for PLAC ELISA and PLAC Activity expired in 2015 or will expire in 2016. We continue to review new patent applications but there can be no assurance that these patent applications will be used or any issued patents will maintain a competitive advantage for our PLAC ELISA and PLAC Activity products.

While there can be no assurance that other patents or our other intellectual property or regulatory barriers may further protect our PLAC ELISA and PLAC Activity products, we believe that there are manufacturing and regulatory barriers to competition that may limit the ability of potential competitors to achieve a clinical performance level comparable to our PLAC ELISA and PLAC Activity products.

We have also filed or have licensed rights to a number of patent applications that are in an early stage of prosecution, and we cannot make any assurances that any of the pending patent applications will become issued and enforceable patents. In addition, due to technological changes that may affect our proposed products or judicial interpretation of the scope of our patents, our proposed products might not, now or in the future, be adequately covered by our patents.

Furthermore, U.S. Supreme Court decisions in cases involving patents claiming genetic materials and information, and diagnostic products and methods based on genetic materials and information may impact our business. For example, on March 20, 2012, in Mayo Collaborative Services, DBA Mayo Medical Laboratories, et al. v. Prometheus Laboratories, Inc., the U.S. Supreme Court issued an opinion holding that the processes claimed by Prometheus’ patent were not patent eligible because these processes—determining the relationships between concentrations of certain metabolites in the blood and the likelihood that a thiopurine drug dosage will prove ineffective or cause harm—merely apply laws of nature and are not themselves patentable. On June 13, 2013 in Association for Molecular Pathology et al.v. Myriad Genetics, Inc., et al. the U.S. Supreme Court issued an opinion holding that a naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated, but cDNA is patent eligible because it is not naturally occurring. It is unknown what impact these decisions will have with respect to our patents.

We license key intellectual property from GlaxoSmithKline and ICOS, and our contractual relationships have certain limitations.

We have an exclusive license from GlaxoSmithKline (formerly SmithKlineBeecham plc) and a co-exclusive license from ICOS Corporation (“ICOS”), subsequently acquired by Eli Lilly and Company, to practice and commercialize technology covered by several issued and pending U.S. patents and their foreign counterparts. Some of these licensed patents covering composition of matter and cardiovascular diagnostic claims have different expiration dates from 2015 through 2016, which may limit our ability to generate future revenue from products claimed under those exclusive and co-exclusive licenses.

Several of our agreements with each of GlaxoSmithKline and ICOS provide licenses to use intellectual property that is important to our business, and we may enter into additional agreements in the future with GlaxoSmithKline or with other third parties that change licenses to valuable technology. Current licenses impose, and future licenses may impose, various commercialization, milestones and other obligations on us, including the obligation to terminate our use of patented subject matter under certain circumstances. If a licensor becomes entitled to, and exercises, termination rights under a license, we could lose valuable rights and our ability to develop our current and future products. Our business may suffer if any current or future licenses terminate, if the licensors fail to abide by the terms of the license or fail to prevent infringement by third parties, if the licensed patents or other rights are found to be invalid or if we are unable to enter into necessary licenses on acceptable terms.

Any inability to adequately protect our proprietary technologies and product candidates could harm our competitive position.

We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. We plan to continue to apply for patents covering our technologies and products as we deem appropriate. We cannot make assurances that our pending patent applications will issue as patents and, if they do, whether the scope of such claims will be sufficiently broad to prevent third parties from utilizing our technologies, commercializing our discoveries, or developing competing products. Any patents we currently hold, or obtain in the future, may be held invalid or unenforceable or may not be sufficiently broad to prevent others from utilizing our technologies, commercializing our discoveries, or developing competing technologies and products. Moreover, expiration or invalidation of our issued patents may impact our ability to maintain the competitive position of our products. Furthermore, third parties may independently develop similar or alternative technologies or design around our patented technologies. Third parties may challenge or invalidate our patents, or our patents may fail to provide us with any competitive advantage.

We have rights to patents and patent applications owned by licensors that provide important protection on the composition of matter and utility of our products, product candidates and product pipeline. We do not, however, directly control the prosecution and maintenance of all of these patents. A licensor may not fulfill its obligations under a license and may allow these patents to go abandoned or may not pursue meaningful claims for our products. Also, while the U.S. Patent and Trademark Office has issued patents covering diagnostic utility or methods, we do not know whether or how courts will enforce these patents. If a court finds our patents for these types of inventions to be invalid, unenforceable or interprets them narrowly, the benefits of our patent strategy may not materialize. If any or all of these events occur, they could diminish the value of our intellectual property.

Risks Relating to Our Stock

Our stock price is likely to continue to be volatile.

Currently, our common stock is quoted on the OTC Bulletin Board. Stocks traded “over the counter” typically are subject to greater volatility than stocks traded on stock exchanges, such as the NASDAQ Stock Market, due to the fact that OTC trading volumes are generally significantly lower than those on stock exchanges. This lower volume may allow a relatively few number of stock trades to greatly affect the stock price, particularly where the trading price of the stock price is relatively low. In addition, the stock markets and the markets for medical diagnostics and biotechnology stocks in particular, have experienced volatility that has often been unrelated to the operating performance of particular companies. Moreover, our stockholders and Board approved a 15-for-1 reverse stock split that resulted in increased volatility due to our higher stock price as adjusted for the reverse stock split. For example, our stock price at December 31, 2015 declined by more than 51% since July 1, 2015, the first trading day following the effectiveness of the reverse stock split. The trading price of our common stock has been and is likely to continue to be extremely volatile. Some of the many factors that may cause the market price of our common stock to fluctuate include, in no particular order:

Our ability to grow our established business based on two FDA-cleared products;

Our ability to develop, launch and commercialize potential new products;

Actions taken by regulatory authorities with respect to our products;

The progress and results of our product development efforts or those of our competitors;

Significant changes to our executive team or other members of senior management;

The outcome of legal actions to which we may become a party;

Changes in our strategy and competitive positioning;

Changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;

Our ability to uplist to a national stock exchange; and

Restatements of our financial results and/or material weaknesses in our internal controls.

These broad market fluctuations may adversely affect the trading price of our common stock. Investors may not be able to sell when they desire due to insufficient buyer demand and may realize less than, or lose all of, their investment.

We are not currently listed on a national exchange and there can be no assurance we will ever be listed.

As a result of our failure to make timely filings of financial statements, we were delisted from The NASDAQ Stock Market in 2004. Currently, our common stock is quoted on the OTC Bulletin Board under the symbol DDXS. We do not know when, if ever, our common stock will be listed on a national stock exchange. In order to be eligible for relisting or listing, we must meet the initial listing criteria for The NASDAQ Stock Market or another national exchange, including a minimum per share price. We currently do not meet these requirements and cannot assure you that we will be able to satisfy these requirements, or if we satisfy them, that we will be able to maintain compliance with them.

Our business and operations could be negatively affected as a result of actions of activist stockholders.

Campaigns by stockholders to effect changes at publicly traded companies are sometimes led by investors through various corporate actions, including Board nominations and proxy contests. We may become subject to one or more campaigns by stockholders who desire to increase stockholder value in the short term. If we become engaged in a proxy contest with an activist stockholder in the future, our business and operations could be adversely affected as responding to such contests or other activist stockholder actions would be costly and time-consuming, and we would expect that such actions would disrupt our operations and divert the attention of management and our employees from executing our strategic plans and product launch. In addition, if individuals are elected to our Board with a specific agenda or without relevant experience or expertise, it may adversely affect the ability of the Board to function effectively as well as our ability to effectively and timely implement our strategic plans, which are focused on building shareholder value. Any perceived uncertainties as to our future direction as a result of shareholder activism or changes to the composition of our Board may lead to the perception of a change in the direction of our business and instability or lack of continuity with respect to our products which may cause concerns for our customers or be exploited by our competitors. As a result, we could experience significant volatility and a decline of our stock price, the loss of potential business opportunities and difficulties in attracting and retaining qualified personnel and customers. For example, we entered into a settlement agreement with an activist stockholder pursuant to which we nominated, and the stockholders elected, John Sperzel III, a mutually acceptable candidate for election at our 2015 annual meeting of stockholders. There can be no assurance that we will not be subject to additional campaigns by other stockholders now or in the future.

Our charter documents and Delaware law may discourage an acquisition of our Company.

Provisions of our certificate of incorporation, bylaws, and Delaware law could make it more difficult for a third-party to acquire us, even if doing so would be beneficial to our stockholders. For example, we may issue shares of preferred stock in the future without stockholder approval and upon such terms as our Board of Directors may determine. Our issuance of this preferred stock could have the effect of making it more difficult for a third-party to acquire, or of discouraging a third-party from acquiring, a majority of our outstanding stock. Our bylaws also provide that special stockholder meetings may be called only by our Board of Directors, Chairperson of the Board of Directors, or by our Chief Executive Officer, with the result that any third-party takeover not supported by the Board of Directors could be subject to significant delays and difficulties.

Item 1B.

Unresolved Staff Comments

None.

Item 2.

Properties

We maintain our principal administrative office, laboratory and production operations in a 65,000 square foot leased facility located at 349 Oyster Point Boulevard under a lease agreement that expires in December 2016. We believe this facility is more than adequate for our present needs.

Item 3.

Legal Proceedings

We are from time to time subject to various claims and legal actions during the ordinary course of business. We believe that there are currently no claims or legal actions that would reasonably be expected to have a material adverse effect on its results of operations or financial condition.

Item 4.

Mine Safety Disclosures

Not applicable.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stock Holder Matters and Issuer Purchases of Equity Securities

Our common stock is quoted on the OTC Bulletin Board (the “OTCQB”) under the symbol “DDXS.” The following table sets forth the high and low bid prices of our common stock for the periods indicated. The prices represent quotations by dealers without adjustments for retail markups or commission and may not represent material transactions. Effective June 30, 2015, we consummated a 1-for-15 reverse split of all issued and outstanding shares of common stock and concurrently reduced the authorized number of common stock to 50,000,000 shares. All share and per share amounts have been adjusted to reflect this reverse split.

	Common Stock
	2015				2014
	High		Low		High		Low
First Quarter	$	10.65	$	4.95	$	17.70	$	13.20
Second Quarter		6.00		3.90		15.00		9.45
Third Quarter		4.71		2.45		11.40		6.60
Fourth Quarter	$	3.75	$	1.76	$	8.55	$	4.20

On March 28, 2016, the last reported sales price of our common stock on the OTCQB was $1.55 per share.

Holders

There were approximately 72 holders of record of our common stock as of March 28, 2016. Because many of our shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

Recent Sales of Unregistered Securities

None.

Repurchases and Dividends

There were no Issuer purchases of equity securities during the year ended December 31, 2015.

We have never declared or paid any cash dividends on our common stock and we do not currently intend to pay any cash dividends on our common stock for the foreseeable future. Under the terms of a loan agreement with a lender, we are restricted from declaring a dividend without the bank’s consent.

The information required by this item regarding equity compensation plans is incorporated by reference to the information in Item 11 of this Annual Report on Form 10-K.

Item 6.

Selected Financial Data

Not required.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve a number of risks and uncertainties. Our actual results could differ materially from those indicated by forward-looking statements as a result of various factors, including but not limited to, the period for which we estimate our cash resources are sufficient, the availability of additional funds, as well as those set forth under “Risk Factors” and those that may be identified from time to time in our reports and registration statements filed with the Securities and Exchange Commission.

The following discussion and analysis is intended to provide an investor with a narrative of our financial results and an evaluation of our financial condition and results of operations. This discussion should be read in conjunction with the Financial Statements and related Notes included in PART II, Item 8 of this Annual Report on Form 10-K for the year ended December 31, 2015.

Overview

We are a diagnostics company focused on developing and commercializing proprietary cardiovascular diagnostic products addressing unmet needs in cardiovascular disease (“CHD”). We sell our diagnostic products to laboratories and hospitals. Physicians order tests for their patients from these laboratories and use the results to aid in assessing their patients’ risk for CHD.

Our company was initially incorporated in November 1995. In July 2010, we completed a reverse merger with former diaDexus, Inc., which was the successor to a company initially formed as a joint venture between SmithKlineBeecham Corporation (now GlaxoSmithKline LLC (“GlaxoSmithKline”)) and Incyte Pharmaceuticals, Inc. Upon formation in September 1997, SmithKlineBeecham Corporation granted former diaDexus, Inc. an exclusive license to certain diagnostic intellectual property, including exclusive rights to develop diagnostic assays for lipoprotein-associated phospholipase A2 (“Lp-PLA₂”). In November 2010, in connection with the reverse merger, we changed our name to diaDexus, Inc.

Our products, the PLAC ELISA Test and the PLAC Activity Test, (collectively “the PLAC Tests”), are designed to provide information, over and above traditional risk factors, such as cholesterol levels, to help identify individuals at increased risk of suffering a heart attack or stroke. Some of these events may be reduced with earlier detection of increased risk and more aggressive risk-reducing strategies, including treatment to lower LDL-cholesterol goals with statins. We have commercialized two PLAC Tests. One test measures the mass of circulating Lp-PLA₂ in the blood using an enzyme-linked-immunosorbent serologic assay (“ELISA”), the PLAC ELISA Test. The PLAC ELISA Test is the only Lp-PLA₂ blood test cleared by the Food and Drug Administration (“FDA”) to aid in assessing risk for both coronary heart disease and ischemic stroke associated with atherosclerosis. The second test, the PLAC Activity Test, is an enzyme assay for the quantitative determination of Lp-PLA₂ activity levels in human plasma and serum on automated clinical chemistry analyzers, to be used in conjunction with clinical evaluation and patient risk assessment as an indicator of atherosclerotic cardiovascular disease.

We have incurred substantial losses since inception, and expect to continue to incur net losses for at least the next few years based on our current plans to engage in new development activities to broaden or enhance our product pipeline. To date, we have funded our operations primarily through private placements of equity and debt financing, as well as through revenue generated from the sale of products.

We entered into a Loan and Security Agreement with Comerica Bank in September 2011, which was amended in September 2012 and again in October 2013.This loan was terminated in August 2014 and a new Loan and Security Agreement was established with Oxford. The new Loan and Security Agreement contained certain financial and non-financial covenants. Our future liquidity requirements may increase beyond currently expected levels if we fail to maintain compliance with such covenants. In order to meet our future liquidity needs, we may become reliant on additional equity and/or debt financing. Additional funding may not be available when needed or on terms acceptable to us. Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants and security interests in our assets. We cannot assure you that we will be able to raise any such additional funding in a timely manner if we require funds.

License and Supply Agreement

Under the License and Supply Agreement, we granted Licensee an exclusive license and supply agreement granting Licensee rights to develop and commercialize Lp-PLA₂ mass assay products in certain Asian countries (the “Territory”) with a license term of ten years, and supply commitments dependent on certain conditions. We will be responsible for supplying to Licensee certain raw materials and reagents needed for Licensee to develop, produce and sell PLAC^® ELISA in the Territory. Licensee will seek marketing authorization for the test in the Territory. Licensee has agreed to purchase the Lp-PLA₂ mass assay products exclusively from us at a mark-up above our manufacturing cost. Licensee has also committed to a minimum first bulk supply purchase totaling $50,000.

After commencement of commercial sales, we will be eligible to receive certain modest sales-based milestones as well as mid-single-digit royalties on net sales. As the milestones are not dependent upon any actions of the Company and therefore not considered substantive, the milestone payments, if and when received, will be treated as additional arrangement compensation. The Company will recognize a prorated share of the milestone from inception of the agreement to the date the milestone was received, with the remaining recorded as deferred revenue and recognized over the remaining life of the agreement on a straight-line basis.

In addition to the PLAC^® ELISA rights, we have also granted to Licensee a right of first offer for future rights to PLAC^® Activity in the Territory.

In connection with the License and Supply Agreement, we and OriGene entered into a separate securities purchase agreement (the “Stock Purchase Agreement”) on September 4, 2015. Pursuant to the Stock Purchase Agreement, on September 4, 2015, when the closing market price of our stock was $3.01, we issued 264,681 shares of our common stock, at a per share purchase price of approximately $3.82 for a total of $1.0 million. We have accounted for the License and Supply Agreement and the Stock Purchase Agreement as one arrangement under the multiple element arrangement guidance as they were entered into simultaneously and reference each other in the agreements. The difference in the fair value of the common stock and the purchase price, $0.2 million, is being recognized as license revenue ratably over the ten year period of the License and Supply Agreement. The revenue recognized in connection with the license fee for the year ended December 31, 2015 was $7,000.

Critical Accounting Policies and Estimates

The accompanying discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, and related disclosures. On an ongoing basis, we evaluate these estimates. Estimates are based on historical experience, information received from third parties and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from those estimates under different assumptions or conditions.

Note 2 of the financial statements in Part II, Item 8 of this Annual Report on Form 10-K, describes the significant accounting policies used in the preparation of the financial statements. We consider the following accounting policies to be critical accounting policies because they are significantly affected by critical accounting estimates, they are highly important to the portrayal of our financial condition and results and they require management judgments and assumptions about matters that are inherently uncertain.

Revenue Recognition

We generate revenues from product sales, license fees and service contract arrangements. Revenues are recorded net of customer and distributor discounts. Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) delivery of product has occurred and risk of loss and title has transferred, transfer of technology (intellectual property) has been completed or services have been rendered; (iii) the fee is fixed or determinable; and (iv) collectability is reasonably assured. Service revenue is recognized as the contractually obligated services are performed, provided that the fee is fixed and determinable and collectability is reasonable assured.

License fee revenue including nonrefundable upfront fees, is deferred and recognized over the term of the underlying agreements. Revenue from technology licenses or other payments under collaborative agreements where we have a continuing obligation to perform is recognized as revenue over the expected period of the continuing performance obligation. The term of these underlying agreements is ten years. Payments received that are related to substantive, performance-based “at-risk” milestones are recognized as revenue upon achievement of the milestone or event specified in the underlying contracts, which represents the culmination of the earnings process. Amounts received in advance, if any, are recorded as deferred revenue until the milestone is reached. Milestone payments received that are not related to substantive, performance-based “at risk” milestones are recognized as additional consideration under the specific agreement to which they related and are recognized over the life of the agreement.

Revenues by geography are based on the billing address of the customer. The following table sets forth revenues by geographic area (in thousands):

	Years Ended December 31,
	2015		2014
United States	$	17,554	$	26,043
Europe		553		302
Rest of the world		7		78
	$	18,114	$	26,423

Stock-Based Compensation

We account for stock-based compensation using the fair value recognition provisions of Accounting Standard Codification (“ASC”) 718, Share-Based Payment. The fair value of stock options and warrants are calculated using the Black-Scholes pricing method on the date of grant. Determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the input of various assumptions, including the expected life of the stock-based payment awards, our stock price volatility and the expected forfeiture rate of our options. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment.

Because employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in our management’s opinion, the existing model does not necessarily provide a reliable single measure of fair value of our employee stock options. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the stock-based compensation expense could be significantly different from what we have recorded in the current period. See Note 12 to the financial statements for more information regarding stock-based compensation.

Forward Currency Contracts

In March 2014, we entered into a License and Supply Agreement with BRAHMS. Under the terms of the agreement, we paid 750,000 Euros in April 2014 and another 500,000 Euros in March 2015. We paid an additional 500,000 Euros in development and regulatory milestones in June 2015, may pay up to 1,000,000 Euros in post-launch commercialized milestones, and royalties on future sales. In order to reduce our foreign exchange risk, on January 30, 2015, we entered into two forward contracts to purchase an aggregate of 1,000,000 Euros in two tranches: 500,000 Euros in March 2015 and an additional 500,000 Euros in September 2015. The forward contract for March 2015 offset the payment due to BRAHMS in March 2015. The latter contract was offset by a spot contract in June 2015 when the developmental milestone was reached. The forward contracts did not qualify as a cash flow hedge. Realized and unrealized gains and losses on the forward contracts are a component of “Other income (expense)” in the accompanying condensed Statements of Comprehensive Loss. At December 31, 2015, there were no forward contracts outstanding.

Income Taxes

Effective January 1, 2009, we adopted ASC 740-10, Accounting for Income Taxes. ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The interpretation applies to all tax positions accounted for and requires a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in an income tax return. Subsequent recognition, de-recognition and measurement is based on management’s best judgment given the facts, circumstances and information available at the reporting date. See Note 16 to the financial statements for more information regarding our income tax policies.

Pre-merger VaxGen filed tax returns with positions that may be challenged by the tax authorities. These positions relate to, among others, deductibility of certain expenses, expenses included in our research and development tax credit computations, as well as other matters. Although the outcome of any tax audit is uncertain, in management’s opinion, adequate provisions for income taxes have been made for potential liabilities resulting from such matters. We regularly assess the tax positions for such matters and include reserves for those differences in position. The reserves are utilized or reversed once the statute of limitations has expired and/or at the conclusion of the tax examination. We believe that the ultimate outcome of these matters will not have a material impact on our financial position, financial operations or liquidity.

We file income tax returns in the U.S. federal jurisdiction and several state jurisdictions. To date, we have not been audited by the Internal Revenue Service or any state income tax jurisdictions. Our policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense. As of December 31, 2015, there have been no interest or penalties charged to us in relation to the underpayment of income taxes.

We have generated net losses since inception and accordingly did not record a provision for income taxes. The deferred tax assets were primarily comprised of federal and state tax net operating loss (“NOL”) carry forwards. Due to uncertainties surrounding our ability to continue to generate future taxable income to realize these tax assets, a full valuation allowance has been established to offset our deferred tax assets. Additionally, the future utilization of our NOL carry forwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that may have occurred previously or that could occur in the future. If necessary, the deferred tax assets will be reduced by any carry forwards that expire prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.

Under the provisions of Sections 382 and 383 of the Internal Revenue Code, a change of control, as defined in the Internal Revenue Code, may impose an annual limitation on the amount of the Company’s net operating loss and tax credit carry forwards, and other tax attributes, that can be used to reduce future tax liabilities. As a result of our reverse merger, certain of the Company’s tax attributes related to former Diadexus, Inc. prior to the reverse merger are subject to an annual limitation of $240,000 for federal and state purposes.

Results of Operations

Results of Operations for the Years Ended December 31, 2015 and 2014

Revenues

	Years Ended December 31,				% Increase (Decrease)
	2015		2014		2014 to 2015
	(in thousands)
Revenues:
Product sales revenue	$	17,987	$	21,204		(15	)%
Service revenue		120		4,994		(98	)%
License revenue		7		225		(97	)%
Total net revenues	$	18,114	$	26,423		(31	)%

Revenues are generated from product sales, laboratory service contract arrangements and licensing fees. Service revenues relate to laboratory services under an agreement with GlaxoSmithKline.

Total revenues for the year ended December 31, 2015 were $18.1 million, a decrease of approximately $8.3 million, or 31% compared with the year ended December 31, 2014. This change primarily reflects decreased revenues for services of $4.9 million for the year, as well as a $3.2 million reduction in product sales. The reduction in product sales is primarily due to our formerly largest customer, Health Diagnostics Laboratory, or HDL, filing for Chapter 11 bankruptcy on June 7, 2015. Total sales to HDL declined $4.3 million between periods. Subsequent to the bankruptcy filing, we continued to do business with HDL on a “cash-in-advance” basis until they were sold on September 30, 2015. Partially offsetting the HDL decrease is an increase in sales to regional and national laboratories and international customers of approximately $1.7 million. Service revenue recorded during 2015 and 2014 was earned from our 2014 contract with GlaxoSmithKline, which was completed in 2014. No further revenue is expected from this contract.

Our top five customers accounted for 70% and 64% of our net revenues for the years ended December 31, 2015 and 2014, respectively. Because of this customer concentration and the timing of orders from these customers, our quarterly and annual revenues may fluctuate materially. We expect quarterly revenues to fluctuate more due to the high customer concentration. In December 2014, we received FDA 510(k) clearance for commercialization of our PLAC Activity Test.

Product and Service Costs of Revenue

	Years Ended December 31,				% Increase (Decrease)
	2015		2014		2014 to 2015
	(in thousands)
Product costs	$	5,362	$	6,764		(21	)%
Service costs		—		598		(100	)%
Total costs of revenue	$	5,362	$	7,362		(27	)%

Product costs include our expenditures for cost of goods, manufacturing support, product supplies, quality control, personnel expenses and facility costs. Total costs of revenue for the year ended December 31, 2015 were $5.4 million, a decrease of $2.0 million, or 27% compared to the year ended December 31, 2014. Product costs decreased $1.4 million due to decreased sales as well as reduced headcount and continued cost containment efforts following the restructuring implemented in the fourth quarter of 2014. Service costs decreased $0.6 million. Service costs include our expenditures such as personnel and temporary support staff performing service functions and laboratory supplies consumed in the performance of required laboratory procedures. The 2014 amounts reflect expenses incurred in conjunction with providing laboratory services to GlaxoSmithKline during the year ended December 31, 2014. Service costs incurred during 2015 were negligible and consisted of the disposition of the final samples from services performed under our contract with GlaxoSmithKline in 2014.

Sales and Marketing Expenses

	Years Ended December 31,				% Increase (Decrease)
	2015		2014		2014 to 2015
	(in thousands)
Sales and marketing	$	4,920	$	10,083		(51	)%

Sales and marketing expenses include our expenditures on customer support, medical and other consultant fees, marketing programs and materials, and personnel expenses. Sales and marketing expenses for the year ended December 31, 2015 were $4.9 million, a decrease of $5.2 million, or 51% compared to the year ended December 31, 2014. The decrease primarily reflects a $3.8 million reduction in personnel expenses following the restructuring implemented in the fourth quarter of 2014 and a commensurate reduction in other personnel associated expenses including travel, entertainment and office costs. The reduction also reflects continued cost containment efforts during 2015.

Research and Development Expenses

	Years Ended December 31,				% Increase (Decrease)
	2015		2014		2014 to 2015
	(in thousands)
Research and development	$	4,339	$	6,347		(32	)%

Research and development expenses include costs related to product development, regulatory support of our technology and other technical support costs, including salaries and consultant fees. Research and development expenses for the year ended December 31, 2015 were $4.3 million, a decrease of $2.0 million, or 32% compared to the year ended December 31, 2014. This decrease primarily reflects a decrease in expenses related to the development of our product pipeline. Research and development expenses in 2014 included $1.7 million for the initial payment to obtain an exclusive license from BRAHMS related to certain heart failure biomarkers versus $0.6 million in a milestone payment to BRAHMS during 2015. Additional decreases include $0.5 million in reduced personnel costs following the restructuring implemented in the fourth quarter of 2014, reductions in other related expenses such as laboratory and office costs, and continued cost containment efforts during 2015.

General and Administrative Expenses

	Years Ended December 31,				% Increase (Decrease)
	2015		2014		2014 to 2015
	(in thousands)
General and administrative	$	7,839	$	9,612		(18	)%

General and administrative expenses include personnel costs for finance, administration, information systems and professional fees as well as facilities expenses. General and administrative expenses for the year ended December 31, 2015 were $7.8 million, a reduction of $1.8 million, or 18%, compared to the year ended December 31, 2014. This decrease was primarily related to a decrease of $1.9 million in personnel costs following the restructuring implemented in the fourth quarter of 2014, as well as continued cost containment efforts during 2015, which was partially offset by an increase in professional service expenses.

Provision for Doubtful Accounts

Provision for doubtful accounts incurred during 2015 relates to the June 7, 2015 Chapter 11 bankruptcy filing of HDL. We recorded a $0.9 million allowance for doubtful accounts to fully reserve against the HDL accounts receivable. There was no similar expense during 2014.

Interest Income, Interest Expense and Other Income (Expense), Net

	Years Ended December 31,						% Increase (Decrease)
	2015			2014			2014 to 2015
	(in thousands)
Interest income, interest expense and other income (expense), net
Interest income	$	3		$	3			—	%
Interest expense		(1,857	)		(1,560	)		19	%
Other income (expense), net		(51	)		87			(159	)%
Total net interest and other income (expense)	$	(1,905	)	$	(1,470	)		30	%

Interest income is derived from cash and cash equivalent balances. Interest expense is based on outstanding debt obligations. Net interest and other expense for the year ended December 31, 2015 was $1.9 million, an increase of 0.4 million, or 30% compared to the year ended December 31, 2014. The increase primarily reflects higher interest expense during 2015 due to a larger outstanding balance and higher interest rate under the credit facility with Oxford as compared to our previous credit facility with Comerica that was terminated during 2014. Interest expense during 2014 included one-time charges related to the Comerica credit facility termination totaling $0.4 million. Other expense for the year ended December 31, 2015 included Delaware franchise tax expense of $79,000, which was partially offset by realized gains on the forward currency contracts. Delaware franchise taxes increased significantly in 2015 due to our reverse stock split. Other income for the year ended December 31, 2014 primarily comprised foreign exchange gains related to payables denominated in Euros.

Liquidity and Capital Resources

Since our inception, we have incurred losses, and we have relied primarily on private placements of preferred stock and debt financing, as well as on revenue generated from the sale of products, to fund our operations. As of December 31, 2015, we had an accumulated deficit of $215.5 million, a working capital deficit of $5.9 million and stockholders’ deficit of $4.7 million. The recurring losses from operations and negative cash flows from operations raise substantial doubt regarding our ability to continue as a going concern, and for the year ended December 31, 2015, our independent registered public accounting firm has expressed in its auditors’ report on our financial statements included as part of this Annual Report a “going concern” opinion.

We will require additional funds to uplist our Common Stock from OTC Bulletin Board to NASDAQ and to broadly commercialize our products and develop new products. Our ability to fund our operations and to conduct the required development activities related to any new product candidates will be significantly limited if we are unable to obtain the necessary capital. We expect to seek to raise funds through equity or debt offerings, bank facilities, or other sources of capital. Additional funding may not be available when needed or on terms acceptable to us and we may need to implement additional cost cutting actions. The consent of Oxford will likely be required for additional debt financings. Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. We cannot assure you that we will be able to raise any such additional funding. We do not believe that our cash resources of $9.1 million as of December 31, 2015 provide us with sufficient funds to meet our expected working capital needs through the end of 2016.

In August 2014, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Oxford to borrow up to $15 million, the entire amount of which was borrowed at a fixed interest rate of 6.95% per annum. The Loan Agreement contains a number of customary representations and warranties and customary covenants, including covenants regarding delivery of financial statements, maintenance of inventory, payment of taxes, maintenance of insurance, dispositions of property, business combinations or acquisitions, incurrence of additional indebtedness and transactions with affiliates. If the Company breaches any of these covenants or it is unable to make a required payment of principal or interest, or it experiences a material adverse change to its business, it could result in a default under the Loan and Security Agreement and the amount of the loan balance, plus accrued and unpaid interest, and final payment, and the prepayment fee, and other obligations due the lender would be come due immediately.

In September 2015, we entered into a Stock Purchase Agreement with OriGene in connection with the License and Supply Agreement. Pursuant to the Stock Purchase Agreement, on September 4, 2015, when the closing market price of our stock was $3.01, we issued 264,681 shares of our common stock, at a per share purchase price of approximately $3.82 for a total of $1.0 million. The difference in the fair value of the common stock and the purchase price, $0.2 million, is being recognized as license revenue ratably over the ten year period of the License and Supply Agreement. The revenue recognized in connection with the license fee for the year ended December 31, 2015 was $7,000.

Cash and Cash Equivalents

As of December 31, 2015, we had cash, and cash equivalents, of $9.1 million, compared to cash and cash equivalents of $14.9 million at December 31, 2014. The decrease of $5.8 million was primarily cash used in operating activities of $5.5 million and principal repayments on the outstanding loan agreement commencing October 2015, which was partially offset by proceeds from the issuance of common stock.

Cash Flows from Operating Activities

Net cash used in operating activities of $5.5 million for the year ended December 31, 2015 was principally due to the net loss of $7.2 million and a $0.7 million cash outflow related to changes in operating assets and liabilities, reduced by the effect of non-cash items totaling $2.3 million. Significant non-cash items were stock-based compensation expense of $0.8 million, depreciation and amortization of $0.4 million, interest expense of $0.8 million, provision for doubtful accounts of $0.9 million and $0.2 million of inventory obsolescence reserve, which was partially offset by unfavorable lease amortization of $0.8 million.

Net cash used in operating activities of $7.0 million for the year ended December 31, 2014 was principally due to the net loss of $8.5 million and a $0.3 million cash inflow related to changes in operating assets and liabilities, further reduced by the effect of non-cash items totaling $1.2 million. Significant non-cash items were stock-based compensation expense of $0.8 million, depreciation and amortization of $0.5 million, interest expense of $0.5 million, and $0.1 million of inventory obsolescence reserve, which was partially offset by unfavorable lease amortization of $0.7 million.

Cash Flows from Investing Activities

There was minimal net cash used in investing activities to purchase property and equipment during the year ended December 31, 2015.

Net cash used by investing activities in the year ended December 31, 2014 was $0.2 million, primarily due to the purchase of property and equipment.

Cash Flows from Financing Activities

Net cash used in financing activities of $0.3 million for the year ended December 31, 2015 consisted primarily of $1.1 million of debt repayments which commenced in October 2015, partially offset by proceeds from the sale of our common stock in connection with the License and Supply Agreement with OriGene and minimal proceeds from stock option exercises.

Net cash provided by financing activities in the year ended December 31, 2014 was $5.3 million, primarily due to borrowings under our new credit facility with Oxford in the amount of $15.0 million and stock option exercises of $0.5 million. This was partially offset by $10.0 million in repayment of principle of our previous loan with Comerica and $0.2 million in loan issuance costs related to the credit facility with Oxford.

Other Information

Our future capital requirements will depend primarily upon our ability to maintain and grow our current product revenues, to develop and commercialize our product pipeline, to develop or acquire new cardiovascular biomarker tests, to manage our obligations under real estate leases, and to improve our reimbursement prospects from third-party payers.

We will require additional financing and will seek to raise funds through equity or debt offerings, bank facilities, or other sources of capital. Additional funding may not be available when needed or on terms acceptable to us. Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. We cannot assure you that we will be able to raise any such additional funding.

We have incurred substantial losses since inception, and expect to continue to incur net losses for at least the next few years based on our current plans to engage in new development activities to broaden or enhance our product pipeline. To date, we have funded our operations primarily through private placements of preferred stock and debt financing, as well as through revenue generated from the sale of products.

In August 2014, we entered into a loan and security agreement with Oxford (see Note 9 of the Notes to Financial Statements included in this Annual Report on Form 10-K). This loan contains various covenants. If we breach any of these covenants or we are unable to make a required payment of principal or interest, or experience a material adverse change to our business, it could result in a default under the loan. Upon the occurrence of an event of default under the loan, Oxford could elect to declare all amounts outstanding to be

immediately due and payable. If we are unable to repay those amounts, Oxford could proceed against the collateral granted to them to secure such indebtedness. We have pledged substantially all of our assets, other than our intellectual property, as collateral under the loan.

In order to meet the future working capital needs, we are reliant on additional equity and/or debt financing. Additional funding may not be available when needed or on terms acceptable to us. Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. We cannot assure you that we will be able to raise any such additional funding or, if available, that such funding would be on favorable terms.

Commitments and Contingencies

Our contractual obligations and future minimum lease payments that are non-cancelable at December 31, 2015 are disclosed in the following table (in thousands):

	Total		2016		2017		2018		2019		Year 5 and after
Debt obligations	$	16,773	$	5,554	$	5,554	$	5,665	$	—		—
Operating lease obligations		2,738		2,738		—		—		—		—
Total contractual commitments	$	19,511	$	8,292	$	5,554	$	5,665	$	—		—

As part of the reverse merger completed in 2010, we recorded a lease obligation which contained a lease payment that exceeded current market rates. Accordingly, we recognized a $4.1 million unfavorable lease obligation. We amortize the unfavorable lease obligation using the effective interest rate method. The carrying amount of the unfavorable lease liability was $1.0 million as of December 31, 2015. The expense related to the amortization of the unfavorable lease obligation is not included in the table above.

As described in Note 9 of the financial statements included in Item 8 of this Annual Report on Form 10-K, due to the substantial doubt about our ability to continue operating as a going concern and the material adverse change clause in the Oxford Loan Agreement, the entire amount of notes payable at December 31, 2015 has been classified as current in these financial statements. Oxford has not invoked the material adverse change clause.

Off-Balance Sheet Arrangements

As of December 31, 2015, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Recent Accounting Pronouncements

See Note 2 of our Notes to Financial Statements for recent accounting pronouncements, including the expected dates of adoption and estimated effects on our financial statements.

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

In the normal course of business, our financial position is routinely subject to a variety of risks, including market risk associated with interest rate movement. We regularly assess these risks and have established policies and business practices intended to protect against these and other exposures. As a result, we do not anticipate material potential losses in these areas.

As of December 31, 2015, we had cash and cash equivalents of $9.1 million which consisted of cash and highly liquid money market funds.

Item 8.

Financial Statements and Supplementary Data

DIADEXUS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page in Form 10-K
Report of Independent Registered Public Accounting Firm		34
Balance Sheets at December 31, 2015 and 2014		35
Statements of Comprehensive Loss for the years ended December 31, 2015 and 2014		36
Statements of Cash Flows for the years ended December 31, 2015 and 2014		37
Statements of Stockholders’ Equity for the years ended December 31, 2015 and 2014		38
Notes to Financial Statements		39

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Diadexus, Inc.:

In our opinion, the accompanying balance sheets and the related statements of comprehensive loss, of stockholders’ equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Diadexus, Inc. at December 31, 2015 and December 31, 2014, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements 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. An audit 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, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ PricewaterhouseCoopers LLP

San Jose, California

March 29, 2016

DIADEXUS, INC.

BALANCE SHEETS

(in thousands, except share data)

	December 31,
	2015			2014
Assets
Current assets:
Cash and cash equivalents	$	9,116		$	14,946
Accounts receivable, net of reserve of $910 and $6 at December 31, 2015 and 2014, respectively		1,704			4,101
Inventories		186			578
Prepaid expenses and other current assets		398			500
Total current assets		11,404			20,125
Restricted cash		1,400			1,400
Property and equipment, net		302			637
Other long-term assets		49			131
Total assets	$	13,155		$	22,293
Liabilities and Stockholders’ (Deficit) Equity
Current liabilities:
Accounts payable	$	737		$	1,023
Notes payable, current portion		14,357			957
Deferred revenues, current portion		21			120
Deferred rent, current portion		208			128
Unfavorable lease obligations		957			820
Accrued and other current liabilities		995			3,074
Total current liabilities		17,275			6,122
Non-current portion of notes payable		—			13,791
Non-current portion of deferred revenue		184			—
Non-current portion of deferred rent		—			208
Non-current portion of unfavorable lease obligation		—			957
Other long term liabilities		407			369
Total liabilities		17,866			21,447
Commitments and contingencies (Note 14)
Stockholders’ (deficit) equity:
Preferred stock, $0.01 par value, 20,000,000 shares authorized; none issued or outstanding		—			—
Common stock, $0.01 par value; 50,000,000 shares authorized; 4,100,060 and 3,783,195 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively		41			38
Additional paid-in capital		210,777			209,171
Accumulated deficit		(215,529	)		(208,363	)
Total stockholders’ (deficit) equity		(4,711	)		846
Total liabilities and stockholders’ (deficit) equity	$	13,155		$	22,293

See accompanying notes to financial statements.

DIADEXUS, INC.

STATEMENTS OF COMPREHENSIVE LOSS

(in thousands, except share data)

	Years ended December 31,
	2015			2014
Revenues:
Product sales	$	17,987		$	21,204
Service revenue		120			4,994
License revenue		7			225
Total revenues		18,114			26,423
Operating costs and expenses:
Product costs of revenue		5,362			6,764
Service costs of revenue		—			598
Sales and marketing		4,920			10,083
Research and development		4,339			6,347
General and administrative		7,839			9,612
Provision for doubtful accounts		904			1
Total operating costs and expenses		23,364			33,405
Loss from operations		(5,250	)		(6,982	)
Interest income, interest expense and other income (expense), net:
Interest income		3			3
Interest expense		(1,857	)		(1,560	)
Other income (expense), net		(51	)		87
Loss before income tax		(7,155	)		(8,452	)
Income tax provision		11			15
Net loss	$	(7,166	)	$	(8,467	)
Net loss and comprehensive loss	$	(7,166	)	$	(8,467	)
Basic and diluted net loss per share:	$	(1.83	)	$	(2.30	)
Weighted average shares used in computing basic and diluted net loss per share		3,911,300			3,679,874

See accompanying notes to financial statements.

DIADEXUS, INC.

STATEMENTS OF CASH FLOWS

(in thousands)

	Years Ended December 31,
	2015			2014
Operating activities:
Net loss	$	(7,166	)	$	(8,467	)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on disposal of assets		—			(5	)
Depreciation and amortization		357			509
Stock-based compensation		756			838
Provision for doubtful accounts		904			1
Non-cash interest expense		38			35
Inventory obsolescence reserve		256			93
Non-cash interest associated with notes payable		828			471
Unfavorable lease		(820	)		(697	)
Changes in operating assets and liabilities:
Accounts receivable		1,493			(1,075	)
Inventory		136			(211	)
Prepaid expenses, other current assets and other long-term assets		99			395
Accounts payable		(286	)		431
Accrued liabilities and other long-term liabilities		(2,079	)		885
Deferred rent		(128	)		(51	)
Deferred revenue		85			(107	)
Net cash used in operating activities		(5,527	)		(6,955	)
Investing activities:
Purchases of property and equipment		(22	)		(211	)
Proceeds from sale of assets, net		—			4
Net cash used in investing activities		(22	)		(207	)
Financing activities:
Proceeds from notes payable		—			15,000
Principal repayment of loan		(1,134	)		(10,000	)
Debt issuance costs		—			(224	)
Proceeds from issuance of common stock		853			485
Net cash (used in) provided by financing activities		(281	)		5,261
Net decrease in cash and cash equivalents		(5,830	)		(1,901	)
Cash and cash equivalents, beginning of year		14,946			16,847
Cash and cash equivalents, end of year	$	9,116		$	14,946
Supplemental disclosure:
Cash paid for interest	$	1,036		$	921
Issuance of warrants for common stock in connection with debt	$	—		$	470
Net change in accounts payable from acquisition of property and equipment	$	—		$	(19	)
Net change in accrued liabilities from acquisition of property and equipment	$	—		$	(10	)

See accompanying notes to financial statements.

DIADEXUS, INC.

STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(In thousands, except share data)

	Common Stock
	Number of Shares		Amount		Additional Paid in Capital		Accumulated Deficit			Total Stockholder’s (Deficit) Equity
Balance at December 31, 2013		3,649,996	$	37	$	207,379	$	(199,896	)	$	7,520
Stock-based compensation		—		—		839		—			839
Issuance and sale of common stock under stock-based compensation plans		133,199		1		483		—			484
Issuance of warrants		—		—		470		—			470
Net loss		—		—		—		(8,467	)		(8,467	)
Balance at December 31, 2014		3,783,195		38		209,171		(208,363	)		846
Stock-based compensation		—		—		756		—			756
Issuance and sale of common stock under stock-based compensation plans		55,181		—		65		—			65
Issuance and sale of common stock		261,684		3		785		—			788
Net loss		—		—		—		(7,166	)		(7,166	)
Balance at December 31, 2015		4,100,060	$	41	$	210,777	$	(215,529	)	$	(4,711	)

See accompanying notes to financial statements.

Diadexus, Inc.

Notes to Financial Statements

1. Business Overview

Formation of the Company

Diadexus is a diagnostics company developing and commercializing products that deliver healthcare providers with relevant information to assist in the management of their patients throughout the course of cardiac disease. The Company’s capabilities include proprietary manufacturing, assay development, FDA regulatory clearances, and marketing and selling products. Diadexus has evolved from a company that served a concentrated group of customers to one that is building a broad, diversified base of new laboratory customers through the launch of The PLAC^® Test for Lp-PLA₂ Activity (the “PLAC Activity Test”). Since its inception, the Company has incurred losses, and it has relied primarily on private placements of preferred stock and debt financing, as well as on revenue generated from the sale of products, to fund its operations. As of December 31, 2015, the Company had an accumulated deficit of $215.5 million, a working capital deficit of $5.9 million and stockholders’ deficit of $4.7 million.

The Company will require additional funds to uplist its Common Stock from the OTC Bulletin Board to NASDAQ and to broadly commercialize its products and develop new products. Its ability to fund operations and to conduct the required development activities related to any new product candidates will be significantly limited if the Company is unable to obtain the necessary capital. The Company expects to seek to raise funds through equity or debt offerings, bank facilities, or other sources of capital. Additional funding may not be available when needed or on terms acceptable to the Company and it may need to implement additional cost cutting actions. The consent of Oxford Finance LLC (“Oxford”) will likely be required for additional debt financings. Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. The Company cannot assure you that it will be able to raise any such additional funding. Failure to generate sufficient cash flows from operations, including failure to increase revenues, raise additional capital and reduce discretionary spending could have a material adverse effect on the Company’s ability to achieve its intended business objectives. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not contain any adjustments that might result from the outcome of this uncertainty. Additionally, due to the substantial doubt about the Company’s ability to continue operating as a going concern and the material adverse change clause in the Oxford Loan Agreement, the entire amount of notes payable at December 31, 2015 has been classified as current in these financial statements. Oxford has not invoked the material adverse change clause.

In August 2014, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Oxford to borrow up to $15 million, the entire amount of which was borrowed at a fixed interest rate of 6.95% per annum. The Loan Agreement contains a number of customary representations and warranties and customary covenants, including covenants regarding delivery of financial statements, maintenance of inventory, payment of taxes, maintenance of insurance, dispositions of property, business combinations or acquisitions, incurrence of additional indebtedness and transactions with affiliates. If the Company breaches any of these covenants or it is unable to make a required payment of principal or interest, or it experiences a material adverse change to its business, it could result in a default under the Loan and Security Agreement and the amount of the loan balance, plus accrued and unpaid interest, and final payment, and the prepayment fee, and other obligations due the lender would be come immediately payable.

Effective June 30, 2015, the Company consummated a 1-for-15 reverse split of all issued and outstanding shares of common stock and concurrently reduced the number of authorized common stock to 50,000,000 shares. All share and per share amounts have been adjusted to reflect this reverse split.

All references in these notes to financial statements to the “Company,” “we,” “us” and “our” refer to Diadexus, Inc. (f/k/a VaxGen, Inc.), a Delaware corporation, unless the context requires otherwise.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain amounts previously reported in the financial statements have been reclassified to conform to the current year presentation. Such reclassifications did not affect net loss, stockholders’ equity or cash flow.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S.”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets, including assets held for sale, and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results may differ significantly from those estimates. Management makes

estimates when preparing the financial statements including those relating to revenue recognition, forward currency contracts and stock-based compensation.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of 90 days or less to be cash equivalents. Cash equivalents consist primarily of money market accounts.

Restricted Cash

Restricted cash represents term deposits, which expire in January 2017, held at one financial institution as collateral for the lease of the Company’s facilities in South San Francisco.

Foreign currency contracts

In March 2014, the Company entered into a License and Supply Agreement with BRAHMS. Under the terms of the agreement, the Company paid 750,000 Euros in April 2014 and another 500,000 Euros in March 2015. The Company paid an additional 500,000 Euros in development and regulatory milestones in June 2015 and may pay up to 1,000,000 Euros in post-launch commercialized milestones and royalties on future sales. In order to reduce its foreign exchange risk, on January 30, 2015, the Company entered into two forward contracts to purchase an aggregate of 1,000,000 Euros in two tranches: 500,000 Euros in March 2015 and an additional 500,000 Euros in September 2015. The forward contract for March 2015 offset the payment due to BRAHMS in March 2015. The latter contract was offset by a spot contract in June 2015 when the developmental milestone was reached. The forward contracts did not qualify as a cash flow hedge. Realized and unrealized gains and losses on the forward contracts are a component of Other income (expense) in the accompanying condensed Statements of Comprehensive Loss. At December 31, 2015, there were no forward contracts outstanding.

Allowance for Doubtful Accounts

The Allowance for Doubtful Accounts reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. Activity in the allowance for doubtful accounts was as follows (in thousands):

	2015		2014
Balance, beginning of the period	$	6	$	5
Charges to costs		904		1
Write offs		—		—
Balance, end of the period	$	910	$	6

On June 7, 2015, the Company’s then-largest customer, Health Diagnostic Laboratory, (“HDL”) filed for Chapter 11 bankruptcy. The Company recorded a $0.9 million allowance for doubtful accounts to fully reserve against the HDL accounts receivable. The Company continued to sell to HDL on a “cash-in-advance” basis subsequent to the bankruptcy filing until HDL was sold on September 30, 2015.

Inventory

Inventories are stated as the lower of cost or market. Cost is determined using the first in, first out method. Market value is determined as the lower of replacement cost or net realizable value.

Property and Equipment

Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. Expenditures for major additions and improvements are capitalized, and maintenance and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Laboratory equipment, computers, software, and office furniture are depreciated over three years. Leasehold improvements are recorded at cost and amortized over the term of the lease or their useful life, whichever is shorter. Maintenance and repairs are expensed as incurred.

Segments

The Company has one reportable segment and uses one measurement of profitability to manage its business. All long-lived assets are maintained in the U.S.

Revenues by geography are based on the billing address of the customer. The following table sets forth revenues by geographic area (in thousands):

	Years Ended December 31,
	2015		2014
United States	$	17,554	$	26,043
Europe		553		302
Rest of the world		7		78
	$	18,114	$	26,423

Revenue Recognition

Revenues are generated from product sales, license fees and contract service arrangements, and recorded net of customer and distributor discounts. Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) delivery of product has occurred and risk of loss and title has transferred, transfer of technology (intellectual property) has been completed or services have been rendered; (iii) the fee is fixed or determinable; and (iv) collectability is reasonably assured. Service revenue is recognized as the contractually obligated services are performed, provided that the fee is fixed and determinable and collectability is reasonably assured.

License fee revenue including nonrefundable upfront fees, is deferred and recognized over the term of the underlying agreements. Revenue from technology licenses or other payments under collaborative agreements where the Company has a continuing obligation to perform is recognized as revenue over the expected period of the continuing performance obligation. The term of these underlying agreements ranges from two to ten years. Payments received that are related to substantive, performance-based “at-risk” milestones are recognized as revenue upon achievement of the milestone or event specified in the underlying contracts, which represents the culmination of the earnings process. Amounts received in advance, if any, are recorded as deferred revenue until the milestone is reached. Milestone payments received that are not related to substantive, performance-based “at risk” milestones are recognized as additional consideration under the specific agreement to which they related and are recognized over the life of the agreement.

Starting in January 2013, the Company includes excise tax collected from customer product sales in its Statements of Consolidated Loss. The Company recognized $230,000 and $289,000 in charged excise tax within product revenue and product costs, respectively, for the year ended December 31, 2015. For the year ended December 31, 2014, there was $311,000 and $354,000 of excise tax recognized, respectively, within product revenue and product costs.

Shipping and handling costs related to the shipment of product are included in “Product costs of revenue.”

Accruals

In connection with the process of preparing financial statements, the Company estimates accrued expenses. This process involves communicating with the Company’s applicable personnel to identify services that have been performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of actual cost. The majority of the Company’s service providers invoice it monthly in arrears for services performed. The Company makes estimates of accrued expenses as of each balance sheet date in the financial statements based on known facts and circumstances. The Company periodically confirms the accuracy of estimates with selected service providers and makes adjustments, if necessary.

Research and Development

Research and development expenses include internal and external costs. Internal costs include product development, regulatory support for technology, laboratory materials and supply costs and other technical support costs, including salaries and consultant fees. External expenses consist of sponsored research studies and investigator sponsored trials. Research and development costs are expensed as incurred.

Impairment of Long-Lived Assets

In accordance with Accounting Standards Codification (“ASC”) Subtopic ASC 360-10, impairment of long-lived assets is measured or assessed when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

Stock-Based Compensation

The Company recognizes stock-based compensation expense for all stock-based payment awards in accordance with ASC 718, which requires the measurement and recognition of compensation expense for all stock-based payments made to employees and directors including employee stock option awards, based on estimated fair value. Stock-based compensation expense for expected-to-vest stock-based awards is valued under the single-option approach and amortized on a straight-line basis, net of estimated forfeitures. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s statements of operations for all periods presented.

The assumptions used in computing the fair value of stock-based awards reflect the Company’s best estimates, but involve uncertainties relating to market and other conditions, many of which are outside of the Company’s control. In addition, the Company’s estimate of future stock-based compensation expense will be affected by a number of items including the Company’s stock price, the number of stock options the Company’s board of directors may grant in future periods, as well as a number of complex and subjective valuation adjustments and the related tax effect.

The fair value of nonvested restricted stock units (“RSUs”) is based on the Company’s closing stock price on the date of grant.

The net loss for the years ended December 31, 2015 and 2014 include employee stock-based compensation expense of $756,000 and $838,000, respectively. As of December 31, 2015, the total unrecorded stock-based compensation expense for unvested stock options, net of expected forfeitures, was $688,458, which is expected to be amortized over a weighted-average period of 2.95 years.

Fair Value Measurements

In accordance with ASC Subtopic 820-10 the carrying amounts of certain financial instruments of the Company, including cash equivalents, marketable securities and liabilities, continue to be valued at fair value. ASC Subtopic 820-10 defines fair value and provides guidance for using fair value to measure assets and liabilities and is applicable whenever assets or liabilities are required or permitted to be measured at fair value.

The fair value estimates presented reflect the information available to the Company as of December 31, 2015. See Note 4, “Fair Value Measurements.”

Deferred Rent

Deferred rent consists of the difference between cash payments and the recognition of rent expense on a straight-line basis for the buildings the Company leases. The leases provide for fixed increases in minimum annual rental payments and the total amount of rental payments due over the lease terms are being charged to rent expense ratably over the life of the leases.

Comprehensive Income (Loss)

Comprehensive income (loss) represents all changes in stockholders’ equity except those resulting from investments or contributions by stockholders. The Company’s unrealized gains on available-for-sale securities represent the component of comprehensive income (loss) excluded from the Company’s net loss.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

On January 1, 2009, the Company adopted ASC 740-10-25. For the years ended December 31, 2015 and 2014, the Company did not have any new uncertain tax positions and there was no effect on its financial condition or results of operations as a result of adopting ASC 740-10-25. The Company’s practice is to recognize interest and/or penalties related to income tax matters in interest expense as incurred.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). The amendment in this ASU provides guidance on the revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The core principle of this update provides guidance to identify the performance obligations under the contract(s) with a customer and how to allocate the transaction price to the performance obligations in the contract. It further provides guidance to recognize revenue when (or as) the entity satisfies a performance obligation. In August 2015, the FASB issued an update to defer the effective date of this update by one year. The updated standard becomes effective for the Company in the first quarter of fiscal year 2018, but allows the Company to adopt the standard one year earlier if it so chooses. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on its Financial Statements and related disclosures, and is therefore unable to determine the impact on the Company’s financial statements.

In August 2014 the FASB issued Accounting Standards Update No 2014-15: Presentation of Financial Statement Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). The update sets forth a requirement for management to evaluate whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period, including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans. (5) require an express statement of other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date the financial statements are issued (or available to be issued). ASU will be effective for the Company in fiscal year 2016. The Company is currently assessing the future impact of this ASU date on its financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for annual and interim reporting periods of public entities beginning after December 15, 2015, and early adoption is permitted. The Company is evaluating the impact of this standard.

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): “Simplifying the Measurement of Inventory (“ASU 2015-11”), which permits companies to measure inventory at the lower of cost and net realizable value. ASU 2015-11 applies to all business entities and is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating the impact of this standard.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, which amends existing guidance on income taxes to require the classification of all deferred tax assets and liabilities as non-current on the balance sheet. The Company is required to adopt this ASU no later than January 1, 2018, with early adoption permitted, and the guidance may be applied either prospectively or retrospectively. The Company does not expect this ASU to have a material impact on its financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The updated guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The amendment to the standard is effective for the Company beginning on June 1, 2018. While the Company is currently assessing the impact of the new standard, it does not expect this new guidance to have a material impact on its financial statements.

In February 2016, the FASB issued ASU 2016-02 - Leases (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. ASC 842 supersedes the previous leases standard, ASC 840 Leases. The standard is effective on January 1, 2019, with early adoption permitted. The Company is in the process of evaluating the impact of this new guidance.

3. Cash and Cash Equivalents

The Company maintains its cash in bank accounts, which at times may exceed federally insured limits. The Company has not experienced any losses on such accounts. The Company considers all highly liquid investments purchased with an original maturity of 90 days or less at the time of purchase to be cash equivalents.

The following is a summary of cash, and cash equivalents, as of December 31, 2015 and 2014 (in thousands):

	December 31, 2015
	Cost Basis		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash and cash equivalents:
Cash	$	1,068	$	—	$	—	$	1,068
Money market funds		8,048		—		—		8,048
Total cash and cash equivalents	$	9,116	$	—	$	—	$	9,116

	December 31, 2014
	Cost Basis		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash and cash equivalents:
Cash	$	10,894	$	—	$	—	$	10,894
Money market funds		4,052		—		—		4,052
Total cash and cash equivalents	$	14,946	$	—	$	—	$	14,946

4. Fair Value Measurements

In accordance with ASC 820, the Company discloses and recognizes the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The guidance establishes three levels of the fair value hierarchy as follows:

Level 1: Observable inputs, such as 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.

The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of December 31, 2015 and 2014 (in thousands):

			Fair Value Measurements
	Balance as of December 31, 2015		Quoted Prices In Active Markets for Identical Assets Level 1		Significant other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
Assets:
Cash	$	1,068	$	1,068	$	—	$	—
Money market funds		8,048		8,048		—		—
Restricted cash		1,400		—		1,400		—
	$	10,516	$	9,116	$	1,400	$	—

			Fair Value Measurements
	Balance as of December 31, 2014		Quoted Prices In Active Markets for Identical Assets Level 1		Significant other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
Assets:
Cash	$	10,894	$	10,894	$	—	$	—
Money market funds		4,052		4,052		—		—
Restricted cash		1,400		—		1,400		—
	$	16,346	$	14,946	$	1,400	$	—

The fair value of the notes payable of $14.4 million is based on Level 2 inputs based upon Oxford’s internal rate of return as disclosed to the Company. The fair value of the notes payable is based on the present value of expected future cash flow and assumptions about current interest rates and the credit worthiness of the Company. As of December 31, 2015, the notes payable is carried at face value of $15.0 million less any unamortized debt discount. (See Note 9 Notes Payable).

The carrying value of other financial instruments, including cash, accounts receivable, accounts payable and other payables, approximates fair value due to their short maturities.

5. Inventory

Inventory consists of the following (in thousands):

	December 31, 2015		December 31, 2014
Finished goods	$	148	$	234
Work in process		1		271
Raw materials		37		73
	$	186	$	578

6. Property, Plant and Equipment

The following is a summary of property and equipment at cost less accumulated depreciation as of December 31, 2015 and 2014 (in thousands):

	December 31, 2015			December 31, 2014
Laboratory equipment	$	2,402		$	2,402
Leasehold improvements		616			616
Computer and software		357			336
Furniture and fixtures		101			101
Construction in progress		44			49
		3,520			3,504
Less: Accumulated depreciation and amortization		(3,218	)		(2,867	)
	$	302		$	637

Depreciation and amortization expense for the years ended December 31, 2015 and 2014 was $0.4 million and $0.5 million, respectively.

7. Total Accrued and Other Current Liabilities

Other current liabilities include the following as of December 31, 2015 and 2014 (in thousands):

	December 31, 2015		December 31, 2014
Accrued payroll and related expenses	$	567	$	1,084
Accrued collaborative research obligations		25		612
Accrued restructuring charges		—		736
Accrued Board of Director fees		—		248
Accrued professional services		108		147
Other current liabilities		295		247
Total accrued and other current liabilities	$	995	$	3,074

During 2014, the Company entered into several transition agreements with key employees including its Chief Executive Officer, Chief Business Officer, and Chief Financial Officer. At December 31, 2014, the Company incurred $1.3 million in restructuring charges under these agreements. These costs were recorded in operating expenses in the Statements of Comprehensive Loss and the associated liabilities are recorded in accrued Other Current Liabilities in the Balance Sheet. As of December 31, 2015, the Company made $1.2 million in payments under these agreements and reversed $0.1 million. As of December 31, 2015, there was no remaining accrued balance due under these agreements. See Note.15 “Restructuring and Other Charges” for a further discussion of costs, payments and the ending accrual balance related to these restructuring charges.

Accrued collaborative research obligations at December 31, 2014 represented $0.6 million in payments payable to BRAHMS, for the license of three heart failure markers. This balance was settled in March 2015.

8. Concentration of Credit Risk

Revenues from the following distributor and large laboratory customers represented a significant portion of total revenue for the years ended December 31, 2015 and 2014 and accounts receivable as of December 31, 2015 and 2014. Below are the top five customers that constitute the noted percentages of the Company’s revenues and accounts receivable for 2015 and 2014 (ranking is based on current year revenues).

	Revenue						Accounts Receivable
	December 31, 2015			December 31, 2014			December 31, 2015			December 31, 2014
Customer A		19	%		11	%		35	%		3	%
Customer B		18	%		29	%		—	%		7	%
Customer C		17	%		15	%		12	%		5	%
Customer D		11	%		6	%		15	%		8	%
Customer E		5	%		3	%		5	%		2	%
Total		70	%		64	%		67	%		25	%

9. Notes Payable

In August 2014, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Oxford to borrow up to $15 million, the entire amount of which was borrowed at a fixed interest rate of 6.95% per annum. The obligations under the Loan Agreement are payable in 48 monthly installments which began in October 2014, with interest only payments to be made from October 2014 to September 2015, followed by 36 months of equal principal and interest payments.

The Company paid an initial fee of $150,000 for access to this loan and will be required to pay an additional $1.5 million following the earlier of loan maturity or termination. The Company may prepay all, but not less than all, of the loan amount with 10 days advance notice to Oxford and payment of a prepayment premium. In connection with the Loan Agreement, the Company issued a warrant to Oxford to purchase 60,606 shares of the Company’s common stock (see Note 13, “Stock Warrants”.)

The Company granted Oxford a security interest in substantially all of the Company’s personal property to secure the Company’s payment and other obligations under the Loan Agreement. The security interest does not extend to patents, trademarks and other intellectual property rights (except for the rights to payment related to the sale, licensing or disposition of such intellectual property rights) or certain other specified property.

The Loan Agreement contains a number of customary representations and warranties and customary covenants, including covenants regarding delivery of financial statements, maintenance of inventory, payment of taxes, maintenance of insurance, dispositions of property, business combinations or acquisitions, incurrence of additional indebtedness and transactions with affiliates. The Company is also restricted from paying dividends or making other distributions or payments of its capital stock except for repurchases of stock pursuant to employee stock purchase plans, employee restricted stock agreements, stockholder rights plans, director or consultant stock option plans, or similar plans, provided such repurchases do not exceed $250,000 in the aggregate per fiscal year. If the Company breaches any of these covenants or it is unable to make a required payment of principal or interest, or it experiences a material adverse change to its business, it could result in a default under the Loan and Security Agreement and the amount of the loan balance, plus accrued and unpaid interest, and final payment, and the prepayment fee, and other obligations due the lender would be come immediately payable. As of December 31, 2015, the Company was in compliance with all the covenants.

The Company recorded debt discount of $470,000 associated with the Loan Agreement and the amount will be amortized as interest expense over the term of the Loan Agreement using the effective interest method. Concurrent with the execution of the Loan Agreement, in August 2014, the Company used $8.4 million of the proceeds received from the loan to repay its existing loan with Comerica Bank. All Loan and Security Agreements previously entered with Comerica Bank were terminated upon receipt of this repayment. The Company was in compliance with all the covenants with Comerica Bank prior to the repayment.

The Company accounted for the repayment to Comerica Bank as a debt extinguishment since the issuance of the new loan is with another unrelated creditor. Accordingly, the Company accelerated and expensed the unamortized debt discount of $132,000, debt issuance costs of $82,000 and balloon payment of $117,000 to interest expense in August 2014.

The Company recorded $81,000 of loss from the debt extinguishment as interest expense in August 2014. This amount represents a pre-payment premium pursuant to the Amended Loan and Security Agreement entered into with Comerica Bank.

Future minimum payments for the notes payable are as follows (in thousands):

2016	$	5,554
2017		5,554
2018		5,665
Total minimum payments		16,773

The payments above include interest as well as $1.5 million of additional payment required to be made by the Company following the earlier of loan maturity or termination.

As noted in Note 1 to these financial statements, due to the substantial doubt about the Company’s ability to continue operating as a going concern and the material adverse change clause in the Oxford Loan Agreement, the entire amount of notes payable at December 31, 2015 has been classified as current in these financial statements. Oxford has not invoked the material adverse change clause.

10. Basic and Diluted Loss per Share

Basic net loss per common share is based on the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by giving effect to all potential dilutive common securities, including options and warrants. For all periods presented in this report, stock options and warrants were not included in the computation of diluted net loss per share because such inclusion would have had an antidilutive effect.

The following table shows the total outstanding securities considered anti-dilutive and therefore, excluded from the computation of diluted net loss per share (1) (in thousands):

	As of December 31,
	2015		2014
Options to purchase common stock		551		720
Warrants to purchase common stock		191		78
Total		742		798


(1)	The number of shares is based on the maximum number of shares issuable on exercise or conversion of the related securities as of the period end. Such amounts have not been adjusted for the treasury stock method or weighted average outstanding calculations as required if the securities were dilutive.

11. License and Supply Agreement

On September 4, 2015, the Company entered into a License and Supply Agreement (the “License and Supply Agreement”) with OriGene Technologies, Inc., (“OriGene”) and Wuxi OriGene Biotechnology Co., Ltd., (“WOBC”) (OriGene and WOBC are referred to herein collectively as “Licensee”).

Under the License and Supply Agreement, the Company granted Licensee an exclusive license and supply agreement granting Licensee rights to develop and commercialize Lp-PLA₂ concentration assay products in certain Asian countries (the “Territory”) with a license term of ten years, and supply commitments dependent on certain conditions. The Company will be responsible for supplying to Licensee certain raw materials and reagents needed for Licensee to develop, produce and sell PLAC^® ELISA in the Territory. Licensee will seek marketing authorization for the test in the Territory. Licensee has agreed to purchase the Lp-PLA₂ concentration assay products exclusively from the Company at a mark-up above the Company’s manufacturing cost. Licensee has also committed to a minimum first bulk supply purchase totaling $50,000.

After commencement of commercial sales, the Company will be eligible to receive certain modest sales-based milestones as well as mid-single-digit royalties on net sales. As the milestones are not dependent upon any actions of the Company and therefore not considered substantive, the milestone payments, if and when received, will be treated as additional arrangement compensation. The Company will recognize a prorated share of the milestone from inception of the agreement to the date the milestone was received, with the remaining recorded as deferred revenue and recognized over the remaining life of the agreement on a straight-line basis.

In addition to the PLAC^® ELISA rights, the Company has also granted to Licensee a right of first offer for future rights to PLAC^® Activity in the Territory.

In connection with the License and Supply Agreement, the Company and OriGene entered into a separate securities purchase agreement (the “Stock Purchase Agreement”) on September 4, 2015. Pursuant to the Stock Purchase Agreement, on September 4, 2015, when the closing market price of the Company’s stock was $3.01, the Company issued 261,684 shares of its common stock, at a per share purchase price of approximately $3.82 for a total of $1.0 million. The Company has accounted for the License and Supply Agreement and the Stock Purchase Agreement as one arrangement under the multiple element arrangement guidance as they were entered into simultaneously and reference each other in the agreements. The difference in the fair value of the common stock and the purchase price, $0.2 million, is being recognized as license revenue ratably over the ten year period of the License and Supply Agreement. The revenue recognized in connection with the license fee for the year ended December 31, 2015 was $7,000. Deferred revenue of $0.2 million at December 31, 2015 is included in the accompanying balance sheet.

12. Stock Based Compensation

Stock Option Plans

2012 Equity Incentive Award Plan

The Company’s stockholders approved the 2012 Equity Incentive Award Plan (the “2012 Plan”) at the 2012 Annual Meeting of Stockholders on May 17, 2012 and approved 200,000 shares of common stock authorized for issuance. Upon approval of the 2012 Plan, all shares of common stock that remained available for issuance under the 1996 Stock Option Plan (the “1996 Plan”) and the 1998 Director Stock Option Plan (the “Director Plan”) were added to the shares reserved under the 2012 Plan. In addition, pursuant to the 2012 Plan, any shares of common stock subject to awards previously granted under the 1996 Plan, the Director Plan and certain non-plan option agreements entered into with certain individuals as of March 31, 2012 that terminate, expire or lapse will become available for issuance under the 2012 Plan. The 2012 Plan provides for the granting of options, restricted stock awards, restricted stock unit award, performance awards, dividend equivalents awards, deferred stock awards, deferred stock unit awards, stock payment awards and stock appreciation rights to employees, non-employee directors and consultants. Options granted under the 2012 Plan may be designated as qualified or nonqualified at the discretion of the Compensation Committee of the Board of Directors. Generally, shares issuable upon exercise of options vest ratably over four years, beginning one year from the date of grant; however, options can vest upon grant. Option terms expire no later than 10 years from the date of grant, or 5 years from the date the option is granted to a greater than 10% stockholder. The stock options are exercisable at not less than the fair market value of the stock at the date of grant, or not less than 110% of the fair market value of the stock at the date of grant if granted to a greater than 10% stockholder. The Company has also granted restricted stock unit (“RSU”) awards under the 2012 Plan. RSU awards entitle the recipient to receive one share of the Company’s common stock for every RSU upon vesting. RSUs generally vest annually. As of December 31, 2015, options to purchase 551,294 shares of common stock were outstanding. There were no shares of common stock that were issuable upon the settlement of outstanding RSUs and 224,622 shares were available for issuance under the 2012 Plan. Stock option and restricted stock unit exercises are settled with newly issued common stock from the 2012 Plan’s previously authorized and available pool of shares.

1996 Stock Option Plan

The 1996 Plan initially had 316,667 shares of common stock authorized for issuance and a provision that automatically increased this number by 3.5% of the issued and outstanding common stock on the last trading day of the December immediately preceding each fiscal year through January 2007. Options granted under the 1996 Plan were designated as qualified or nonqualified at the discretion of the Compensation Committee of the Board of Directors. Generally, shares issuable upon exercise of options vest ratably over four years, beginning one year from the date of grant; however, options could vest upon grant. All options expire no later than 10 years from the date of grant. Qualified stock options are exercisable at not less than the fair market value of the stock at the date of grant, and nonqualified stock options are exercisable at prices determined at the discretion of the Board of Directors, but not less than 85% of the fair market value of the stock at the date of grant. On May 17, 2012, the 1996 Plan was terminated in connection with the effectiveness of the 2012 Plan. All 103,699 shares that were available for issuance under the 1996 Plan were transferred to the 2012 Plan, and the 426,594 shares that were subject to awards outstanding under the 1996 Plan remained outstanding pursuant to the terms of the 1996 Plan. As of December 31, 2015, options to purchase 74,752 shares of common stock were outstanding pursuant to the terms of the 1996 Plan. Stock option exercises are settled with newly issued common stock from the 1996 Plan’s previously authorized and available pool of shares.

Restricted Stock Units

On August 6, 2013, the Company awarded an aggregate of 2,781 RSUs to its Directors with a grant-date fair value equal to approximately $55,000 in the aggregate. Each RSU entitles the recipient to receive one share of the Company’s common stock upon vesting. RSUs awarded to Directors generally vest annually. The fair value of nonvested RSUs is based on the Company’s closing stock price on the date of grant. As of December 31, 2015, all of these RSU’s were vested, and none remain outstanding.

On February 6, 2015, the Company awarded an aggregate of 14,545 fully vested RSUs as a bonus to the Chairman of the Board for her performance as Interim Executive Chair in 2014 with a grant-date fair value equal to approximately $92,000 in the aggregate, or $6.30 per share. Each RSU entitled the recipient to receive one share of the Company’s common stock upon vesting. The fair value of the RSU is based on the Company’s closing stock price on the date of grant. As of December 31, 2015, no RSUs remained outstanding.

A summary for the year ended December 31, 2015 is as follows:

	Shares of Underlying RSUs			Average Grant Date Fair Value Price per Share		Weighted Remaining Vesting Period (In years)		Aggregate Intrinsic Value
Nonvested as of December 31, 2013		2,781		$	19.95		0.50	$	37,537
Granted		—			—		—		—
Vested and released		(2,781	)	$	19.95		0.50	$	(37,537	)
Nonvested as of December 31, 2014		—			—		—		—
Granted		14,545		$	6.30		—	$	91,636
Vested and released		(14,545	)	$	6.30		—	$	(91,636	)
Nonvested as of December 31, 2015		—			—		—		—

Stock Based Compensation Expense

The following table summarizes stock compensation expense related to employee stock options and employee stock-based compensation expense for the years ended December 31, 2015 and 2014 which were incurred as follows (in thousands):

	Years Ended December 31,
	2015		2014
Stock-based compensation expense:
General and administrative	$	447	$	623
Research and development		188		61
Sales and marketing		26		125
Product costs		95		29
Total stock-based compensation expense	$	756	$	838

Stock Option Modification

During the year ended December 31, 2015, the Company modified the terms of stock options previously granted to three members of its Board of Directors, extending the exercise period after the end of the Directors’ service to the Company in January 2015. The Company also modified the terms of certain stock options previously granted to one employee upon retirement to accelerate vesting of certain options in May 2015. These modifications resulted in additional compensation expense of $23,000, which is included in the above table. The Company accounted for the modifications of stock option awards in accordance with the provisions of ASC Topic 718.

Valuation Assumptions

The compensation expense related to stock options recognized was determined using the Black-Scholes option valuation model. Option valuation models require the input of subjective assumptions and these assumptions can vary over time. The weighted average assumptions used were as follows:

	Years ended December 31,
	2015			2014
Dividend yield		0.0	%		0.0	%
Risk-free interest rate		1.5	%		1.5	%
Expected volatility		74.1	%		98.4	%
Forfeiture rate		19.9	%		15.0	%
Expected term (years)		4.98

Diadexus, Inc. 10-K