ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995.

These statements involve a number of risks and uncertainties. Words such as “may,” “expects,” “intends,” “anticipates,” “believes,” “estimates,” “plans,” “seeks,” “could,” “should,” “continue,” “will,” “potential,” “projects” and similar expressions are intended to identify such forward-looking statements. Readers are cautioned that these forward-looking statements speak only as of the date on which this Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission (the “SEC”), and, except as required by law, Aspira Women’s Health Inc. (“ASPIRA” and, together with its subsidiaries, the “Company,” “we,” “our,” or “us”) does not assume any obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after such date.



Examples of forward-looking statements regarding our business include the following:

Forward-looking statements are subject to significant risks and uncertainties, including those discussed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019 (our “2019 Annual Report”) as supplemented by the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and for the quarter ended March 31, 2020, that could cause actual results to differ materially from those projected in such forward-looking statements due to various factors, including our ability to continue as a going concern; our ability to increase the volume of our product sales; failures by third-party payers to reimburse OVA1, Overa,  OVA1plus or ASPiRA GenetiX or changes or variances in reimbursement rates; our ability to secure additional capital on acceptable terms to execute our business plan; our ability to comply with Nasdaq’s continued listing requirements to remain publicly traded; in the event that we succeed in commercializing OVA1, Overa, OVA1plus and ASPiRA GenetiX outside the United States, the political, economic and other conditions affecting other countries; our ability to continue developing existing technologies; our ability to develop and commercialize additional diagnostic products and achieve market acceptance with respect to these products; our ability to compete successfully; our ability to obtain any regulatory approval required for our future diagnostic products; our or our suppliers’ ability to comply with the FDA requirements for production, marketing and post-market monitoring of our products; additional costs that may be required to make further improvements to our manufacturing operations; our ability to maintain sufficient or acceptable supplies of immunoassay kits from our suppliers; our ability to continue to develop, protect and promote our proprietary technologies; our ability to use intellectual property directed to diagnose biomarkers; our ability to successfully defend our proprietary technology against third parties; future litigation against us, including infringement of intellectual property and product liability exposure; our ability to retain key employees; business interruptions; changes in healthcare policy; our ability to

comply with environmental laws; our ability to comply with the additional laws and regulations that apply to us in connection with the operation of ASPiRA LABS; our ability to comply with FDA regulations that relate to our products and to obtain any FDA clearance or approval required to develop and perform LDTs; our ability to integrate and achieve anticipated results from any acquisitions or strategic alliances; our ability to use our net operating loss carryforwards; the liquidity and trading volume of our common stock; the concentration of ownership of our common stock; impacts resulting from or relating to the COVID-19 pandemic and actions taken to contain it; expected timing and receipt of proceeds from the DECD loan; expectations regarding the forgiveness of the PPP loan, anticipated use of capital and its effects; and plans to begin offering COVID-19 antigen testing.   



Overview

Our core mission is to transform the state of women’s health, globally, starting with ovarian cancer. We aim to ensure that women of all ages, stages and ethnicities have the best solutions available to assess their personalized risk of cancer at the earliest stage when it matters most. Our end goal is to serve a large global pelvic mass population and overall women’s health sector with a platform coupled with proprietary science and data tools which will drive better health and wellbeing for each patient we serve.

We currently market and sell the following products and related services: (1) OVA1, a blood test designed to, in addition to a physician’s clinical assessment of a woman with a pelvic mass, identify women who are at high risk of having a malignant ovarian tumor prior to planned surgery; (2) Overa, a second-generation biomarker panel intended to maintain our product’s high sensitivity while improving specificity; (3) OVA1plus, a service offering combining our OVA1 and Overa products, designed to improve accuracy and reduce false elevations in the intermediate risk area by nearly 40% by leveraging the strengths of OVA1’s (MIA) sensitivity and Overa’s (MIA2G) specificity; and (4) ASPiRA GenetiX, a genetic test for specific women’s health diseases, initially focused on detecting the risk of hereditary breast and ovarian cancer syndrome (“HBOC”) and carriers of variants of genes associated with cancer. OVA1 received FDA clearance in September 2009, and Overa received FDA clearance in March 2016. OVA1 and Overa each use the Roche cobas 4000, 6000 and 8000 platforms. Through September 30, 2020, our product revenue, which includes revenue from related services has been limited to revenue generated by sales of OVA1, OVA1plus and ASPiRA GenetiX.

We are developing three additional products and related services, including two diagnostic algorithms, OVANex™ and EndoCheck™ and a high-risk screening algorithm, OVAInherit™, for patients who are genetically predisposed to ovarian cancer. These products may be launched as LDTs or FDA cleared tests.

We ultimately plan to commercialize each of our products on a global level. We currently hold CE marks for OVA1 and Overa. In addition, each of OVA1 and Overa are already offered on a global testing platform, which allows both tests to be deployed worldwide.

One of our goals is to deliver a cloud-based technology solution for delivering FDA- and LDT-validated algorithms. In 2020 or 2021, we plan to launch a new decentralized platform and cloud service product, ASPiRA GenetiX Technology Transfer (“AGTT”).  AGTT is an en-suite, cloud-based technology transfer solution that provides an end-to-end platform (sample collection to customized report) for clinical laboratories to internalize

hereditary genetic testing and assess for risk of being a carrier of carrier screening. The product is a fully validated next-generation sequencing assay which can be internalized rapidly as an LDT. AGTT is comprised of a custom-built technology which leverages a novel artificial intelligence-based bioinformatics pipeline that has been customized specifically for the proprietary ASPIRA chemistry, resulting in reduced workflows and redundancies typically associated with internalizing genetics. AGTT is fully automated, providing limited wet lab and sample analysis time, allowing clients to implement and run genetic testing at scale and with minimal cost, time and labor at accelerated turnaround times

We also own and operate ASPiRA LABS, a Clinical Laboratory Improvements Amendments of 1988 (“CLIA”) certified national laboratory based in Austin, Texas, which specializes in applying biomarker-based technologies to address critical needs in the management of gynecologic cancers and disease. ASPiRA LABS provides expert diagnostic services using a state-of-the-art biomarker-based diagnostic algorithm to aid in clinical decision making and advance personalized treatment plans. The lab currently performs our OVA1 and Overa tests, and we plan to expand the testing to other gynecologic conditions with high unmet need. We also plan to develop and perform LDTs at ASPiRA LABS. ASPiRA LABS holds a CLIA Certificate of Registration and a state laboratory license in California, Florida, Maryland, New York, Pennsylvania and Rhode Island. This allows the lab to perform OVA1 and Overa testing on a national basis. The Centers for Medicare and Medicaid Services (“CMS”) issued a provider number to ASPiRA LABS in March 2015.



Recent Developments

Under our loan agreement, dated as of March 22, 2016 (as amended on March 7, 2018 and April 3, 2020, the “Loan Agreement”), with the DECD, we may borrow up to $4,000,000 from the DECD. An initial disbursement of $2,000,000 was made to ASPIRA on April 15, 2016 under the Loan Agreement. During the second quarter of 2020, we achieved the target employment milestone necessary to receive an additional $1,000,000 under the Loan Agreement.  After the DECD indicated that it will fund the remaining $1,000,000 loan as the required revenue target would likely have been achieved in the first quarter of 2020 in the absence of the impacts of COVID-19, we filed the required application for the $2,000,000 disbursement and received final approval from the DECD for the funding. The funds are anticipated to be received in the fourth quarter of 2020.  For additional information, see Note 3, “Commitments and Contingencies”, of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

On July 20, 2020, we completed a private placement pursuant to which certain investors purchased 3,150,000 shares of ASPIRA common stock at a price of $3.50 per share.  Net proceeds of the private placement were approximately $10.6 million, after deducting expenses related to the private placement.

On September 18, 2020, AbbVie Inc. provided the Company with certain serum samples collected and tested as part of AbbVie Inc.’s clinical trials. The Company plans to use the samples in its upcoming EndoCheck™ product validation trial. EndoCheck will be designed as a simple blood test to aid in the detection of endometriosis and, as such, will be less invasive than current detection methods, which require a surgical biopsy. On September 18, 2020, AbbVie Inc. also provided the Company with additional data metrics, including patient demographics, endometriosis surgical pathology diagnoses, and other clinical metrics.

In the fourth quarter of 2020, we launched a digital and media campaign to strengthen our brand identity, as well as increase awareness of the advantages of our OVA1 test, including early detection and racial disparity when compared with CA125.

On October 14, 2020, we announced that we are  a participating provider with Anthem BlueCross BlueShield of Georgia, which has an estimated additional 3.3 million members across the state. As of November 1, 2020, we have approximately 173 million covered lives in the U.S.

Effective November 9, 2020, the Company appointed Dr. Sandra Brooks to its board of directors.

On November 10, 2020, we announced the appointment of the following five new members to our executive leadership team: Dr. Elena Ratner, Global Chief Medical Advisor, Clinical and Translational Medicine; Kaile Zagger, Chief Operating Officer; Dr. Lesley Northrop, Chief Scientific Officer; Dr. Gary Altwerger, Global Deputy Chief Medical Advisor, Clinical and Translational Medicine; and Dr. Diane Powis will join us a Chief Spokeswoman.



COVID-19 Pandemic

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The novel coronavirus has since spread to over 100 countries, including every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19, the disease caused by the novel coronavirus, a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to the coronavirus outbreak. This outbreak has severely impacted global economic activity, and many countries and many states in the United States have reacted to the outbreak by instituting quarantines, mandating business and school closures and restricting travel. Patient enrollment for our planned research studies has been lower due to the impact of closures and restricted travel, which could lead to delays in the completion of such studies. Our commercial efforts to enter into decentralized arrangements with large healthcare networks and supergroups have continued to move forward. However, finalization of such deals have been slowed by the pandemic. In addition, many conventions and industry conferences have been canceled.

As a result of the COVID-19 pandemic and actions taken to contain it, the majority of our non-lab employees have been working remotely, and we expect that they will continue to do so until the number of daily COVID-19 cases in the areas surrounding our offices consistently level off or declines.  In terms of business continuity, our lab operations require on site essential employees. As previously disclosed, we have put in place staffing and reagent contingency plans to ensure there is no down time at our lab.  We believe the lab could continue to operate in the event any isolated infection were to impact a portion of the workforce. In addition, as of the date of the filing of this Form 10-Q, we have approximately four months of reagents, one of our key testing supplies, in stock, depending on volume of tests performed, and we are working with the manufacturer to ensure a consistent supply over the next 6 months. 

We are committed to following recommended physical and social distancing guidelines in order to reduce the risk of infection for our employees. We have also decreased our travel and convention-related expenses. We have taken several measures to reduce the impact of the COVID-19 related closures and quarantines. For example, because our salespeople have experienced limitations on their ability to physically visit physician offices, we have implemented other means of coverage such as virtual sales representative meetings and increased digital sales and marketing. In March, our sales team began making in-person calls to customers as determined on a state by state basis, in accordance with local guidelines. We do not know if such activity can continue if COVID-19 infection rates rise.  We have developed protocols and training for our team where physical visits are allowed to help ensure employee, customer and patient safety. We also hope to leverage avenues in telehealth, and are developing a process for patients to access our ASPiRA GenetiX testing without requiring a visit to a physician.  We plan to launch this telehealth offering in the first quarter of 2021.

In the third quarter 2020, we experienced a recovery in our test volume, such that when comparing the average number of tests per business ordering day in February 2020, the last full calendar month before COVID-19 significantly impacted the United States, to the average number of tests per business ordering day in September 2020, our test volume is back to approximately 95% of pre-COVID-19 levels.  Based on the recent surges of COVID-19 cases, the potential for future resurgences of COVID-19 cases and the variety of federal and state actions taken to contain them, we are unable to estimate the potential future impact of the COVID-19 pandemic on our operations or cash flows as of the date of this filing.

On March 27, 2020, the U.S federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak which, among other things, provides loans, guarantees and subsidies to qualifying businesses and contains numerous income tax provisions. Some of these tax provisions are expected to be effective retroactively for years ending before the date of enactment. We do not expect these tax provisions to have a material impact on our financial statements.

On April 10, 2020, we received a stimulus check of approximately $89,000 from the U.S. Department of Health and Human Services pursuant to the CARES Act.

On May 1, 2020, we were granted a loan (the “PPP Loan”) from BBVA USA in the aggregate amount of $1,005,767, pursuant to the Paycheck Protection Program (the “PPP”), which was established under the CARES Act as administered by the U.S. Small Business Administration (the “SBA”). We believe we used the proceeds of

the PPP Loan in a manner that qualifies for complete forgiveness of the PPP Loan but caution that there can be no assurance that all or any portion of the PPP Loan will be forgiven. See “Liquidity and Capital Resources” for more information. 

In the second quarter of 2020, we began running COVID-19 antibody tests and began preparations for offering COVID-19 antigen tests. The goal of offering COVID-19 antibody testing is to offer providers  a one blood draw per patient test that combines the OVA1plus test with the COVID-19 antigen test, as part of our pre-surgical risk test offering.  Volume of antibody tests has been minimal due to providers receiving COVID-19 testing prior to presurgical blood draw at the local level.  Our planned COVID-19 antigen testing has been postponed due to manufacturer delays. We are currently assessing demand for both  antibody and antigen testing.



Strategy

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



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

We have active international distribution agreements for Overa with Pro-Genetics LTD in Israel and MacroHealth, Inc. in the Philippines. The MacroHealth, Inc. agreement was our first agreement regarding decentralized technology transfer for Overa specimen testing.

In the United States, revenue for diagnostic tests comes from several sources, including third-party payers such as insurance companies, government healthcare programs, such as Medicare and Medicaid, client bill accounts and patients. Novitas Solutions, a Medicare contractor, covers and reimburses for OVA1 tests performed in certain states, including Texas. Due to OVA1 tests being performed exclusively at ASPiRA LABS in Texas, the local coverage determination from Novitas Solutions essentially provides national coverage for patients enrolled in Medicare as well as Medicare Advantage health plans. ASPiRA LABS also bills third-party commercial and other government payers as well as client bill accounts and patients for OVA1.

In November 2016, the ACOG issued Practice Bulletin Number 174 which included OVA1 as a “Multivariate Index Assay”, outlining ACOG’s clinical management guidelines for adnexal mass management. Practice Bulletin Number 174 recommends that obstetricians and gynecologists evaluating women with adnexal masses who do not meet Level A criteria of a low risk transvaginal ultrasound should proceed with Level B clinical guidelines. Level B guidelines state that the physician may use risk assessment tools such as existing CA125 technology or OVA1 (“Multivariate Index Assay”) as listed in the bulletin. Based on this, OVA1 achieved parity with CA125 as a Level B clinical recommendation for the management of adnexal masses.

Practice Bulletins summarize current information on techniques and clinical management issues for the practice of obstetrics and gynecology. Practice Bulletins are evidence-based documents, and recommendations are based on the evidence. This is also the only clinical management tool used for adnexal masses. Although there are Practice Bulletins, guidelines do not exist for adnexal masses. ACOG guidelines do exist, however, for ovarian cancer management.  

In October 2018, ASPiRA LABS launched OVA1plus, a clinical pathway which combines the strengths of OVA1 and Overa. This offering helps drive earlier ovarian cancer risk detection, which in turn lowers overall healthcare costs and reduces inefficiencies in the care pathway.



Recent Publications

In parallel to building our OVA platform offering and our commercial deployment, we have been working on several key publications and product extensions.

In March 2020, the results of an OVA1plus study were scheduled to be presented as a poster at the Society of Gynecologic Oncology’s 2020 Annual Meeting on Women’s Cancer (the “SGO Meeting”). The objective of the study was to determine whether using Overa to perform reflex testing on test results with a high OVA1 score can improve specificity in detection of malignancy in women with adnexal masses, a testing process we refer to as our OVA1plus test. These results indicate that the OVA1plus test did improve specificity in detection of ovarian cancers. Although the SGO Meeting was cancelled due to the COVID-19 pandemic, the abstract was made available on the SGO Meeting’s website.

In October 2020, we published a paper in Current Medical Research and Opinion, titled “Low-risk Multivariate Index Assay Scores, Physician Referral and Surgical Choices in Women with Adnexal Masses”.  A total of 282 independent patient charts were reviewed of which 146 were Low Risk results. Surgery was performed on 56% patients with low risk scores. The other 44% had no surgery and were followed clinically.  There were no invasive cancers in the patients who had surgery. Clinicians were comfortable with expectant management of pelvic masses when OVA1 is low risk. These results demonstrated to us that there is an immediate need to assessing the status of a pelvic mass even though surgery is not performed.



Critical Accounting Policies and Estimates

Our product revenue is generated by performing diagnostic services using our OVA1, Overa, OVA1plus or ASPiRA GenetiX tests, and the service is completed upon the delivery of the test result to the prescribing physician. The entire transaction price is allocated to the single performance obligation contained in a contract with a patient. Under ASC Topic 606, Revenue from Contracts with Customers, all revenue is recognized upon completion of the OVA1, Overa, OVA1plus or ASPiRA GenetiX test and delivery of test results to the physician based on estimates of amounts that will ultimately be realized. In determining the amount of revenue to be recognized for a delivered test result, we consider factors such as payment history and amount, payer coverage, whether there is a reimbursement contract between the payer and us, and any developments or changes that could impact reimbursement. These estimates require significant judgment by management. For OVA1, Overa and OVA1plus tests, we also review our patient account population and determine an appropriate distribution of patient accounts by payer (i.e., Medicare, patient pay, other third-party payer, etc.) into portfolios with similar collection experience. When evaluated for collectability, this results in a materially consistent revenue amount for such portfolios as if each patient account were evaluated on an individual contract basis.



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Product Revenue.  Product revenue was $1,239,000 for the three months ended September 30, 2020 compared to $1,241,000 for the same period in 2019. Revenue for ASPiRA LABS is recognized when the OVA1, Overa, OVA1plus or ASPiRA Genetix test is completed based on estimates of what we expect to ultimately realize. Our revenue was relatively flat for the third quarter compared to the same period in 2019, due to the impact of COVID-19 and actions taken to contain it in 2020. We expect revenue to improve in the fourth quarter due to test volumes returning to and potentially growing higher than, pre COVID-19 levels, provided that the COVID-19 pandemic does not further escalate and result in new quarantines and state closures. The duration of the pandemic and efforts to contain it remains uncertain.

The number of OVA1plus tests performed remained relatively flat at approximately 3,596 OVA1plus tests during the three months ended September 30, 2020 compared to approximately 3,602 OVA1plus tests for the same period in 2019, due to the impact of COVID-19 and actions taken to contain it in 2020.  

The revenue per OVA1plus test performed decreased to approximately $338 compared to $345 for the same period in 2019. This decrease was primarily driven by a third quarter 2019 one-time favorable adjustment related to additional collections.    Through new contracts and insourcing our billing function, we expect to increase the percentage of revenue we receive from third-party payers as compared with revenue we receive from patient payers, as well as improve collections from patient payers. We expect that the broader economic impacts of the COVID-19 pandemic will have an effect on our collections from patient payers, which may continue to adversely affect our revenue per OVA1plus test in the fourth quarter.

Service Revenue.  Service revenue was $0 for the three months ended September 30, 2020 compared to $44,000 for the same period in 2019. Substantially all projects with ASPiRA IVD were finalized during 2019 and the subsidiary’s operations were largely completed. Revenue for ASPiRA IVD was recognized once certain

revenue recognition criteria had been met. We do not expect to have any significant service revenue in 2020 as the IVD trial services were largely wound down in 2019. The Company may continue to have future legacy IVD contracts in 2020.  However, we do not expect any to be significant.

Cost of Revenue - Product.  Cost of product revenue was $803,000 for the three months ended September 30, 2020 compared to $736,000 for the same period in 2019, representing an increase of 9% due primarily to increased kits and software license costs. We expect the cost of product revenue to increase proportionate to the expected increase in test volume in the fourth quarter of 2020. We expect to experience higher gross margin percentages as the volume of tests performed increases as fixed costs are spread across higher volumes.

Cost of Revenue - Service.  Cost of service revenue was $4,000 for the three months ended September 30, 2020 compared to $213,000 for the same period in 2019. The 98% decrease was due to the wind down of our ASPiRA IVD subsidiary in 2019, partially offset by costs related to project closure support.

Research and Development Expenses.  Research and development expenses represent costs incurred to develop our technology and carry out clinical studies, and include personnel-related expenses, regulatory costs, reagents and supplies used in research and development laboratory work, infrastructure expenses, contract services and other outside costs. Research and development expenses for the three months ended September 30, 2020 increased by $255,000, or 75%, compared to the same period in 2019. This increase was primarily due to clinical utility and product development costs related to OVANex™, our third-generation serial monitoring product, in 2020 as well as investments in bioinformatics and AGTT.  We expect research and development expenses to increase in the fourth quarter of 2020, as a result of increased projects, partially offset by a delay in patient recruitment for studies as a result of the COVID-19 pandemic.

Sales and Marketing Expenses.  Our sales and marketing expenses consist primarily of personnel-related expenses, education and promotional expenses, and infrastructure expenses. These expenses include the costs of educating physicians and other healthcare professionals regarding OVA1, Overa, OVA1plus and ASPiRA GenetiX. Sales and marketing expenses also include the costs of sponsoring continuing medical education, medical meeting participation, and dissemination of scientific and health economic publications. Sales and marketing expenses for the three months ended September 30, 2020 decreased $273,000, or 11%, compared to the same period in 2019. This decrease was primarily due to lower travel due to the COVID-19 pandemic. We expect sales and marketing expenses to increase slightly in the fourth quarter of 2020, due to the COVID-19 pandemic and related re-openings,  provided that the COVID-19 pandemic does not further escalate and result in new quarantines and state closures.

General and Administrative Expenses.  General and administrative expenses consist primarily of personnel-related expenses, professional fees and other costs, including legal, finance and accounting expenses and other infrastructure expenses. General and administrative expenses for the three months ended September 30, 2020 increased by $545,000, or 38%, compared to the same period in 2019. This increase is primarily due to an increase in headcount and personnel related expenses as well as legal expenses. We expect general and administrative expenses to remain roughly flat in the fourth quarter. 



Product Revenue.  Product revenue was $3,192,000 for the nine months ended September 30, 2020 compared to $3,120,000 for the same period in 2019. Revenue for ASPiRA LABS is recognized when the OVA1, Overa, OVA1plus or ASPiRA Genetix test is completed based on estimates of what we expect to ultimately realize. The 2% product revenue increase is primarily due to an increase in OVA1 test volume and the number of our genetics tests performed,  partially offset by a lower revenue per test. We expect revenue to improve in the fourth quarter due to test volumes returning to pre COVID-19 levels, provided that the COVID-19 pandemic does not further escalate and result in new quarantines and state closures. The duration of the pandemic and efforts to contain it remains uncertain.