Organization, Acquisitions, Description of Business, Reverse Stock Split and Charter Amendment
 12 Months Ended
Dec. 31, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization, Acquisitions, Description of Business, Reverse Stock Split and Charter Amendment
Organization, Acquisitions, Description of Business, Reverse Stock Split and Charter Amendment

We are an emerging leader in the field of personalized medicine, enabling precision medicine in the field of oncology through our diagnostic products and services and molecular markers. We develop, commercialize and provide molecular- and biomarker-based tests and services that enable physicians to personalize the clinical management of each individual patient by providing genomic information to better diagnose, monitor and inform cancer treatment and that enable biopharmaceutical companies engaged in oncology trials to better select candidate populations and reduce adverse drug reactions by providing information regarding genomic factors influencing subject responses to therapeutics. We have a comprehensive, disease-focused oncology testing portfolio. Our tests and techniques target a wide range of cancers, covering eight of the top ten cancers in prevalence in the United States, with additional unique capabilities offered by our Tissue of Origin® test for identifying difficult to diagnose tumor types or poorly differentiated metastatic disease.

We were incorporated in the State of Delaware on April 8, 1999 and have offices and state-of-the-art laboratories located in California, New Jersey, North Carolina, Shanghai (China), and Hyderabad (India). Our laboratories comply with the highest regulatory standards as appropriate for the services they deliver including CLIA, CAP, NY State, California State and NABL (India).We have two advisory boards to counsel our scientific and clinical direction. Our Scientific Advisory Board is comprised of preeminent scientists and physicians from the fields of cancer biology, cancer pathology, cancer medicine and molecular genetics. Our Clinical Advisory Board is comprised of clinicians and scientists focused on clinical implementation of our proprietary tests and services and mapping those tests and services to patient needs.  Our services are built on a foundation of world-class scientific knowledge and intellectual property in solid and blood-borne cancers, as well as strong academic relationships with major cancer centers such as Memorial Sloan-Kettering, Mayo Clinic, and the National Cancer Institute.

Acquisition of Gentris Corporation
On July 16, 2014, we purchased substantially all of the assets of Gentris Corporation ("Gentris"), a laboratory specializing in pharmacogenomics profiling for therapeutic development, companion diagnostics and clinical trials. Gentris’ laboratory is located in Morrisville, North Carolina and the company has a CLIA and FDA-compliant laboratory facility in Shanghai, China. Upon closing of the acquisition transaction, Gentris Corporation was re-named Gentris, LLC and is now a wholly-owned subsidiary of Cancer Genetics, Inc. The acquisition allows us to expand our biopharma services.

The assets and liabilities of Gentris were recorded in our consolidated financial statements at their estimated fair values as of the acquisition date. The excess value of the consideration paid over the fair value of assets acquired and liabilities assumed was recorded as goodwill. Goodwill arising from the acquisition consists largely from a trained workforce in place and expected synergies with existing operations. Goodwill recorded in conjunction with the acquisition is deductible for income tax purposes. The total consideration for the Gentris acquisition is as follows (in thousands except share amounts):
 
Amount
Cash paid at closing
$
3,250

Issuance of 147,843 common shares
1,272

Estimated fair value of contingent consideration
293

Total purchase price
$
4,815



During the year ended December 31, 2015, we recognized a gain of $207,000 due to settling the contingent consideration for $86,400.

We incurred a finder's fee of $147,500 related to the transaction.

The following table summarizes the final valuation of the assets acquired and liabilities assumed as of July 16, 2014 (in thousands):
 
Amount
Accounts receivable
$
1,869

Other current assets
266

Current liabilities
(785
)
Deferred revenue, long-term
(938
)
Fixed assets
1,951

Goodwill
2,452

Total purchase price
$
4,815



Acquisition of BioServe Biotechnologies (India) Pvt. Ltd.

On August 18, 2014 we entered into two agreements by which we acquired BioServe Biotechnologies (India) Pvt. Ltd. (“BioServe”), a premier genomics services provider serving both the research and clinical markets in India. This transaction was completed through a newly formed subsidiary, Cancer Genetics (India) Pvt. Ltd.
BioServe is a leading genomic service and next-generation sequencing company serving both the research and clinical markets based in Hyderabad, India. With the BioServe acquisition we believe we will be able to access the Indian healthcare market. The acquisition provides us with an infrastructure in India for developing lower cost manufacturing of probes and kits including probes and kits used for our proprietary FHACT test and access to one of the fastest-growing molecular and clinical diagnostic markets in the world. BioServe will continue to serve biotechnology and biopharmaceutical companies, diagnostic companies and research hospitals, including those owned or operated by the Indian government, as well as seek to expand its customer base.

The assets and liabilities of BioServe were recorded in the Company's consolidated financial statements at their estimated fair values as of the acquisition date. The excess value of the consideration paid over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Goodwill arising from the acquisition consists largely from a trained workforce in place and expected synergies from new lines of business. Goodwill recorded in conjunction with the acquisition is not deductible for income tax purposes. The aggregate purchase price is as follows (in thousands except share amounts):
 
Amount
Cash paid at closing
$
73

Notes payable
24

Notes payable (value of 84,278 common shares)
733

Issuance of 31,370 common shares
244

Total purchase price
$
1,074



The final payment for BioServe will be a cash payment equal to the value of 84,278 shares of our common stock in November 2016. This liability is subject to future adjustment based upon changes to our stock price. During the year ended December 31, 2015 and 2014, we recognized a gain of $269,000 and $198,000, respectively, due to the decrease in value of this note. The amounts used in computing the purchase price differ from the amounts in the purchase agreements due to fair value measurement conventions prescribed in accounting standards.

During 2015, the Company made revisions to the preliminary valuation of certain assets acquired which increased goodwill by approximately $193,000, reduced fixed assets by approximately $136,000, reduced other assets by approximately $38,000 and reduced other current assets by approximately $19,000.

The following table summarizes the final valuation of the assets acquired and liabilities assumed as of August 18, 2014 (in thousands):
 
Amount
Accounts receivable
$
151

Other current assets
102

Fixed assets
489

Other assets
378

Goodwill
735

Current liabilities
(759
)
Other liabilities
(22
)
Total purchase price
$
1,074



Acquisition of Response Genetics, Inc.

On October 9, 2015, we acquired substantially all the assets and assumed certain liabilities of Response Genetics, Inc. (“Response Genetics”), with its principal place of business in California, in a transaction valued at approximately $12.9 million, comprised of $7,495,193 in cash and 788,584 shares of the Company’s common stock, with the common stock being valued at $5,436,104.
Response Genetics was a life sciences company engaged in the research and development of clinical diagnostic tests for cancer. Response Genetics generated revenues primarily from sales of its ResponseDX® diagnostic tests, which Response Genetics launched in 2008, and by providing clinical trial testing services to pharmaceutical companies.

The transaction is being accounted for using the acquisition method of accounting for business combinations in accordance with GAAP. Under this method, the total consideration transferred to consummate the acquisition is being allocated to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the closing date of the acquisition. The acquisition method of accounting requires extensive use of estimates and judgments to allocate the consideration transferred to the identifiable tangible and intangible assets acquired and liabilities assumed.

Goodwill arising from the acquisition consists largely from a trained workforce in place and expected synergies from new lines of business. Goodwill recorded in conjunction with the acquisition is deductible for income tax purposes. Business transactions expense of approximately $890,000 incurred in connection with the acquisition was expensed as incurred.

The final allocation of the purchase price of the fair value of the assets acquired and the liabilities assumed as of October 9, 2015 is as follows (in thousands):

 
Amount
Accounts receivable
$
344

Prepaid expenses and other current assets
561

Fixed assets
2,254

Intangible assets
1,246

Goodwill
8,842

Current liabilities
(194
)
Obligations under capital lease
(122
)
Total purchase price
$
12,931



Acquisitions Pro Forma Financial Information

The following table provides certain pro forma financial information for the Company as if the acquisitions of Response Genetics, Gentris and Bioserve discussed above occurred on January 1, 2013 (in thousands except per share amounts):

 
Unaudited
 
Year Ended December 31,
 
2015
 
2014
 
2013
Revenue
$
28,528

 
$
34,167

 
$
32,488

Net loss
(33,237
)
 
(26,427
)
 
(26,712
)
 
 
 
 
 
 
Basic net loss per share
$
(3.05
)
 
$
(2.56
)
 
$
(4.74
)
Dilutive net loss per share
(3.05
)
 
(2.59
)
 
(5.55
)



The pro forma numbers above are derived from historical numbers of the Company, Response Genetics, Gentris and Bioserve. Over time the operations of Response Genetics will be integrated into the operations of the Company. This integration may change how certain tests are coded and submitted to payers (including Medicare) and, consequently, may result in differences in the future in which revenues and bad debt expenses are recorded when compared with the historical methods of Response Genetics. At the current time, we do not have enough information to prepare a reliable estimate of any possible changes.

The results of operations for the year ended December 31, 2015 include the operations of Response Genetics from October 9, 2015 and twelve months of operations of Gentris and Bioserve with combined revenues of $8,771,000. The net loss of Response Genetics, Gentris and Bioserve cannot be determined, as their operations are integrated with Cancer Genetics. The results of operations for the year ended December 31, 2014 include the the operations of Gentris from July 16, 2014 and BioServe from August 18, 2014 and include combined revenues of $3,296,465.

Reverse Stock Splits
On February 8, 2013, we filed a charter amendment with the Secretary of State for the State of Delaware and effected a 1-for-2 reverse stock split of our common stock. On March 1, 2013, we filed another charter amendment with the Secretary of State for the State of Delaware and effected a 1-for-2.5 reverse stock split of our common stock. All shares and per share information referenced throughout the consolidated financial statements have been retroactively adjusted to reflect both reverse stock splits.
Public Offerings
On April 10, 2013, we sold 690,000 shares of common stock at a public offering price of $10.00 per share and completed our initial public offering (“IPO”) with gross proceeds of $6.9 million (net proceeds of $5 million). Upon the closing of the IPO, all shares of our then-outstanding Series A and Series B convertible preferred stock automatically converted into an aggregate of 1,287,325 shares of common stock. Concurrent with the IPO, certain derivative warrants with a fair value of $7.2 million were reclassified into equity due to the lapsing of anti-dilution provisions in the warrants. Also concurrent with the IPO, $9.6 million of debt converted into 963,430 shares of common stock. All references to our Series A convertible preferred stock refer collectively to the Series A and Series A-1 convertible preferred shares.
On August 19, 2013, we sold 1,500,000 shares of common stock at a public offering price of $10.00 per share resulting in gross proceeds of $15.0 million (net proceeds of $13.3 million). We used $3.5 million of the proceeds to repay certain indebtedness which was due on August 15, 2013 (see Note 6 for further discussion of the Company’s debt). On September 5, 2013, we sold 105,000 additional common shares pursuant to partial exercise of the underwriter’s over-allotment option which resulted in gross proceeds of $1.1 million (net proceeds of $947,000). All references to the sales of common stock mentioned in this paragraph are referred to as the “Secondary Offering.”
On October 28, 2013, we sold 3,286,700 shares of common stock, (including the underwriter’s overallotment of 428,700 shares), at a public offering price of $14.00 per share resulting in gross proceeds of $46.0 million (net proceeds of $42.3 million). All references to the sales of common stock mentioned in this paragraph are referred to as the “Follow-On Offering.”

On November 12, 2015, we sold 3,000,000 shares of common stock with warrants to purchase an aggregate of 3,000,000 shares of common stock at a combined public offering price of $4.00 per share and warrant resulting in gross proceeds of $12.0 million ($10.3 million of net proceeds after offering expenses and underwriting discounts). The underwriters also received 450,000 warrants pursuant to the partial exercise of the over-allotment option. The warrants have an exercise price of $5.00, became fully-exercisable at issuance and expire on November 12, 2020. All references to the sales of common stock with warrants mentioned in this paragraph are referred to as the “2015 Offering.”