Note 6. Other Agreements

NuvoGen Obligation

The Company entered into an asset purchase agreement (the “Agreement”) in 2001, as amended, with NuvoGen Research, LLC (“NuvoGen”) to acquire certain intellectual property from NuvoGen. The Company accounted for the transaction as an asset acquisition. However, as the intellectual property was determined to not have an alternative future use, the upfront consideration was expensed. The Company exchanged upfront consideration of 600,000 shares of the Company’s common stock. The remaining cash consideration of $15,000,000 is to be paid by the Company through a percentage of applicable annual sales equal to the greater of a minimum annual payment or 6% of the Company’s applicable annual revenues. The obligation is non-interest bearing and was secured by certain patents and trademarks. Certain terms of the agreement were amended in November 2012 and February 2014.

The Company recorded the obligation at the estimated present value of the future payments using a discount rate of 2.5%, the Company’s estimate of its effective borrowing rate for similar obligations. Unamortized debt discount was $438,067 and $564,634 at March 31, 2015 and December 31, 2014, respectively.

Pursuant to the closing of the Growth Term Loan in August 2014 (See Note 5), the Company agreed to accelerate certain minimum payments pursuant to the Agreement and NuvoGen agreed to terminate its security interest in the originally pledged patents and trademarks. Remaining minimum payments that were otherwise due for 2014, 2015 and the first quarter of 2016, amounting to $868,750 were paid in advance. No further payment is due under the Agreement until the second quarter of 2016. The acceleration of payments did not significantly change the minimum cash flows and therefore had no significant accounting effect.

Payments to NuvoGen during the three months ended March 31, 2015 and 2014 were $0 and $425,000, respectively. Discount accreted during the three months ended March 31, 2015 and 2014 was $126,566 and $47,500 respectively.

The remaining payments due to NuvoGen at March 31, 2015, are as follows:


2015	$	—
2016		543,750
2017		800,000
2018		400,000
2019		400,000
2020 and beyond		7,098,743
	$	9,242,493

Illumina, Inc. Agreement

In October 2014, the Company entered into a development and component supply agreement with Illumina for the development and worldwide commercialization by the Company of up to two complete diagnostic gene expression profiling tests for with Illumina’s diagnostic instruments, using components supplied by Illumina. The Company refers to these diagnostic gene expression profiling tests as IVD test kits. The IVD test kits may be used in two discrete testing fields chosen by the Company, one or both of which may relate to oncology for breast, lung, lymphoma or melanoma tumors, and up to one of which may relate to transplant, chronic obstructive pulmonary disease, or immunology/autoimmunity. The Company provided notice to Illumina of its first testing selections during the quarter ended March 31, 2015. If a second selection is to be elected, the Company must provide notice to Illumina of the Company’s second selected field within 24 months following the date of the agreement.

Following the Company’s selection of the testing field for each IVD test kit, the Company and Illumina have agreed to negotiate a development plan for the development and regulatory approval of the applicable IVD test kit, under which development and regulatory support will be provided by Illumina. Upon mutual agreement of the first development plan, the Company will pay Illumina a fixed fee in the six-figure dollar range. The Company is also required to pay Illumina up to $1.0 million in the aggregate upon achievement of specified regulatory milestones relating to the IVD test kits. In addition, the Company has agreed to pay Illumina a single digit percentage royalty on net sales of any IVD test kits that the Company commercializes pursuant to the agreement. As of March 31, 2015 the first development plan has not been completed. Ongoing research and development costs for these programs have been expensed as incurred and $0 has been paid to Illumina relating to this agreement.

The agreement will expire in October 2019 or on the date which the last to expire development plan under the agreement is completed, whichever is earlier. The Company may terminate the agreement at any time upon 90 days’ written notice and may terminate any development plan under the agreement upon 30 days’ prior written notice. Illumina may terminate the agreement upon 30 days’ prior written notice if the Company undergoes certain changes of control or immediately if the Company fails to select a testing field for an IVD test kit within 24 months following the date of the agreement. Either party may terminate the agreement upon the other party’s material breach of the agreement that remains uncured for 30 days, or upon the other party’s bankruptcy.